The relationships between interest rates and inflation changes: An analysis of long-term interest rate dynamics in developing countries
Interest rates lie at the centre of monetary policy, not just as passive reflectors on money supply but rather as one of the main policy instruments. Interest rates have played a central role macroeconomic policy. In developing countries, interest rates have also enjoyed high popularity as policy i...
| Main Authors: | , , |
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| Format: | Conference or Workshop Item |
| Language: | English |
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2007
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| Subjects: | |
| Online Access: | https://repo.uum.edu.my/id/eprint/2416/1/Hossein_Asgharpur.pdf |
| _version_ | 1803624473933381632 |
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| author | Asgharpur, Hossein Kohnehshahri, Lotfali Agheli Karami, Azhdar |
| author_facet | Asgharpur, Hossein Kohnehshahri, Lotfali Agheli Karami, Azhdar |
| author_sort | Asgharpur, Hossein |
| collection | UUM |
| description | Interest rates lie at the centre of monetary policy, not just as passive reflectors on money supply but rather as one of the main policy instruments. Interest rates have played a central role macroeconomic policy. In developing
countries, interest rates have also enjoyed high popularity as policy instruments. For instance, high interest rate has been an essential component of many stabilization programs in countries with chronic inflation during the
1980s. This paper deals with theoretical and empirical aspects of the interactions between interest rates and inflation in developing countries. In the theoretical part reviewing literature revealed that many researchers argue that increasing inflation rate results in increasing interest rate. It is also argued that increasing product costs by increasing interest rate raises product’s prices and consequently inflation. This research examines the causal relationship between the interest rate and inflation rate in a panel of 40 selected Islamic countries using new causality approach and applying panel data methodology
over the 2002 – 2005 periods. The results of this study show a unidirectional causality from interest rate to
inflation rate in 40 Islamic countries. The findings have practical policy implications for decision makers in the area of macroeconomic planning particularly in Islamic countries. The results imply that banks must reduce interest rate to decrease the inflation. |
| first_indexed | 2024-07-04T05:18:57Z |
| format | Conference or Workshop Item |
| id | uum-2416 |
| institution | Universiti Utara Malaysia |
| language | English |
| last_indexed | 2024-07-04T05:18:57Z |
| publishDate | 2007 |
| record_format | dspace |
| spelling | uum-24162011-02-21T12:30:06Z https://repo.uum.edu.my/id/eprint/2416/ The relationships between interest rates and inflation changes: An analysis of long-term interest rate dynamics in developing countries Asgharpur, Hossein Kohnehshahri, Lotfali Agheli Karami, Azhdar HB Economic Theory Interest rates lie at the centre of monetary policy, not just as passive reflectors on money supply but rather as one of the main policy instruments. Interest rates have played a central role macroeconomic policy. In developing countries, interest rates have also enjoyed high popularity as policy instruments. For instance, high interest rate has been an essential component of many stabilization programs in countries with chronic inflation during the 1980s. This paper deals with theoretical and empirical aspects of the interactions between interest rates and inflation in developing countries. In the theoretical part reviewing literature revealed that many researchers argue that increasing inflation rate results in increasing interest rate. It is also argued that increasing product costs by increasing interest rate raises product’s prices and consequently inflation. This research examines the causal relationship between the interest rate and inflation rate in a panel of 40 selected Islamic countries using new causality approach and applying panel data methodology over the 2002 – 2005 periods. The results of this study show a unidirectional causality from interest rate to inflation rate in 40 Islamic countries. The findings have practical policy implications for decision makers in the area of macroeconomic planning particularly in Islamic countries. The results imply that banks must reduce interest rate to decrease the inflation. 2007 Conference or Workshop Item PeerReviewed application/pdf en https://repo.uum.edu.my/id/eprint/2416/1/Hossein_Asgharpur.pdf Asgharpur, Hossein and Kohnehshahri, Lotfali Agheli and Karami, Azhdar (2007) The relationships between interest rates and inflation changes: An analysis of long-term interest rate dynamics in developing countries. In: International Economic Conference on Trade and Industry (IECTI) 2007, 3 - 5 December 2007, Bayview Hotel Georgetown, Penang. (Unpublished) |
| spellingShingle | HB Economic Theory Asgharpur, Hossein Kohnehshahri, Lotfali Agheli Karami, Azhdar The relationships between interest rates and inflation changes: An analysis of long-term interest rate dynamics in developing countries |
| title | The relationships between interest rates and inflation changes: An analysis of long-term interest rate dynamics in developing countries |
| title_full | The relationships between interest rates and inflation changes: An analysis of long-term interest rate dynamics in developing countries |
| title_fullStr | The relationships between interest rates and inflation changes: An analysis of long-term interest rate dynamics in developing countries |
| title_full_unstemmed | The relationships between interest rates and inflation changes: An analysis of long-term interest rate dynamics in developing countries |
| title_short | The relationships between interest rates and inflation changes: An analysis of long-term interest rate dynamics in developing countries |
| title_sort | relationships between interest rates and inflation changes an analysis of long term interest rate dynamics in developing countries |
| topic | HB Economic Theory |
| url | https://repo.uum.edu.my/id/eprint/2416/1/Hossein_Asgharpur.pdf |
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