Finally, it discusses the "positive income shock" and provides a rough estimate of the "effect of monetary policy on country-level consumption" based on a geographic spread of the US showing adjustable-rate mortgages (the study actually includes a cool graph of this). All in all, this study sums up and goes much more in-depth on some of the things we have been discussing in class recently.
http://www.voxeu.org/article/low-interest-rates-can-boost-households-consumption
I wonder if, even with the increase in available funds for consumption, people will be too scared to consume at a healthier rate. The ability to consume more may not always result in more consumption, and I think some consumers will be wary that the influx of disposable money may be short lived.
ReplyDeleteWith falling interest rates more consumption should come in the future. Because people basically make no money on the interest they receive form holding money in banks they will be withdrawing it and spending it. Also, since interest rates on loanable funds are very low as well people and firms will be more willing to take out loans. Loanable funds and a low interest rate have become increasingly popular for families who have children in college or children that will be entering college soon because there is basically no cost of paying back loans for their schooling.
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