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Interest Rates and Price Levels: Quantifying Policy Effectiveness

Ali Takahashi

Pareto Undergraduate Journal of New Economists

Vol. 2 No. 1, Issue 2024

pp. 60 - pp. 72

Abstract

This paper estimates the causal effect of interest rates on household expenditure. The effect is estimated by conducting a semi-parametric model utilizing the [Robinson (1988)] Double Residual Estimator and a linear regression model. We find that the effect of interest rates on household expenditure is negligible across all models, when compared to results from a previous time period in which nominal rates were higher. The results raise concerns regarding the effectiveness of the current monetary policy regime, and therefore we expect greater use of fiscal policy to be beneficial. The question of how the current monetary policy regime will evolve throughout the next decade remains an interesting enquiry.

Ali graduated from UofT in 2021 with an Honours Bachelor of Science in Financial Economics.  After graduation, he joined Bank of America's Global Investment Banking Division, where he was part of the deal team responsible for advising clients on and executing potential M&A deals. He currently works as a venture capitalist in Tokyo, where he participates in sourcing deals, conducting due diligence on potential investments, and providing value-added support to portfolio companies. He would like to thank Professor Zammit for his support and guidance throughout his fourth year, especially during the ECO420 Research in Applied Economics course where work on this paper began.

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About the Author

Get in Touch

Ali Takahashi - alitaka7958@gmail.com

Undergraduate Economics Council

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