Impact of Nominal Interest Rates on Spending by Credit-Constrained Households
While economic theory typically emphasizes that only real interest rates should influence spending decisions, empirical evidence reveals that nominal interest rates can also exert a direct and powerful effect. This transmission channel is particularly significant for households with limited access to credit. For these households, a change in the nominal interest rate can directly alter their disposable income, for example, through adjustments in mortgage payments. As a result, an increase in the nominal interest rate can compel a reduction in consumer spending, even if the real interest rate has not changed.
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Introduction to Macroeconomics Course
Ch.5 Macroeconomic policy: Inflation and unemployment - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
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Impact of Nominal Interest Rates on Spending by Credit-Constrained Households