Why is the Interest Rate an Inverted Leading Indicator of Macroeconomic Activity in the United States? - Archive ouverte HAL Access content directly
Journal Articles Rue de la Banque Year : 2017

Why is the Interest Rate an Inverted Leading Indicator of Macroeconomic Activity in the United States?

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Abstract

The real interest rate at which US firms borrow funds to finance their investment and other expenses has two striking features. It is low when GDP is high (and vice versa) and it is an inverted leading indicator of real economic activity. Low interest rates today forecast future booms in GDP, consumption, investment, and employment. This Rue de la Banque shows that inherent to such correlations is a redistribution channel through which resources typically flow from lending entities to borrowing firms during expansions. Such a redistribution channel is driven by expectations about future levels of the borrowing cost, which accounts for a large share of the volatility of output, investment and other macroeconomic variables during business cycles.
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Dates and versions

hal-01634185 , version 1 (13-11-2017)

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  • HAL Id : hal-01634185 , version 1

Cite

Patrick A. Pintus. Why is the Interest Rate an Inverted Leading Indicator of Macroeconomic Activity in the United States?. Rue de la Banque, 2017. ⟨hal-01634185⟩
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