Paper Information

Journal:   THE ECONOMIC RESEARCH   FALL 2006 , Volume 6 , Number 3; Page(s) 91 To 105.
 
Paper: 

CAUSAL RELATIONSHIP BETWEEN THE INTEREST RATE AND INFLATION USING PANEL DATA

 
 
Author(s):  MEHREGAN N., EZATI M., ASGHARPOUR HOSSEIN
 
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Abstract: 

Interest rate is one of the main macroeconomic variables in economic policy making. In economic literature there is a significant relationship between the interest rate and inflation. Some Iranian policy makers and Islamic economists believe that increased production costs due to increased interest rate can lead to high prices and inflation. On the other hand, economic theories hold that increased inflation rate results in a higher interest rate. This paper examines the causal", relationship between the interest rate and inflation rate in a panel of 23 selected developing countries, using new causality approach and applying panel data over the 2001-2003 periods.
The results show a unidirectional causality from interest rate to inflation rate for 23 developing countries. The findings have practical policy implications for decision makers in the area of macroeconomic planning, particularly in Iran. The results also imply that banks should decrease the received interest rate through increasing their efficiency.

 
Keyword(s): INTEREST RATE, INFLATION RATE, CAUSALITY, PANEL DATA
 
References: 
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