On The Contribution of Interest Expense (Income) on Total Output

Abstract A decrease in interest rate traditional view of monetary policy transmission is linked to a lower cost borrowing which eventually results into greater spending investment and bigger GDP. However, also income which, turn, affects the aggregate demand total So far, no concerted effort has been made investigate this positive inter-relation between GDP existing literature. Here first place we intuitively describe output then provide micro-foundation our intuitive reasoning context small endowment economy with finitely-lived identical households. Then try uncover impact nominal on macroeconomy using multiplier theory for panel some 04 (four) OECD countries. We define calculate corresponding values algebraically empirically measure them impulse response analysis under structural VAR framework. Large, consistent cumulative multipliers indicate stable relationship output. Moreover, variance decomposition shows that significant portion attributed VAR/VECM Finally, have shown how where fits body knowledge.