Does the Interest Rate Form Business Cycle?
Keywords:
Business cycle, Interest rate, Banking Sector.
Abstract
Dynamic structural behavior of depositor, bank and borrower and the role of banks in forming business cycle are investigated. We test the hypothesis that does banks behavior make oscillations in the economy through the interest rate. By dichotomizing banking activities into two markets of deposit and loan, we show that these two markets have non-synchronized structures, and this is why the money sector fluctuation starts. As a result, the fluctuation is transmitted to the real economy through saving and investment functions. Empirical results assert that in the USA, the banking system creates fluctuations in the money sector and real economy as well through short-term interest rates
References
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Beaudry, P; Guay, A; 1996. What Do Interest Rates Reveal About The Functioning of Real Business Cycle Models? Journal of Economic Dynamics and Control, 20, 1661-1682.
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Bidabad, Bijan, Abul Hassan, Dynamic Lag Structure of Deposits and Loans Interest Rates and Business Cycles Formation. Journal of Financial Regulation and Compliance, Vol. 25 Issue: 2, pp.114-132, 2017.
http://dx.doi.org/10.1108/JFRC-09-2016-0078
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https://www.cribfb.com/journal/index.php/ijscgr/article/view/276
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Blankenau, W., Kose, M.A; Yi, K. M; 2001. Can World Real Interest Rates Explain Business Cycles in A Small Open Economy? Journal of Economic Dynamics & Control, 25, 867-889.
Block, W; Barnett II W; 2007. On Laidler Regarding The Austrian Business Cycle Theory. Review of Austrian Economics. Vol. 20 (1): 43-61.
Fisher, I; 1933. The Debt-Deflation Theory of Great Depressions, Econometrica, Vol. 1 (4),. 337-357 http://fraser.stlouisfed.org/docs/meltzer/fisdeb33.pdf
IMF (2010), International Financial Statistics 2010, Country Notes, USA; http://www.imfstatistics.org
Ivanova, D; Lahiri, K; Seitz, F; 2000. Interest Rate Spreads as Predictors of German Inflation and Business Cycles. International Journal of Forecasting 16: 39–58.
Minsky, H; 1992. The Financial Instability Hypothesis, Working Paper No 74, May 1992, pp. 6-8. http://www.levy.org/pubs/wp74.pdf
Baumol, W. J; 1958. Topology of Second Order Linear Difference Equations with Constant Coefficients, Econometrica, 26: 258–287.
Beaudry, P; Guay, A; 1996. What Do Interest Rates Reveal About The Functioning of Real Business Cycle Models? Journal of Economic Dynamics and Control, 20, 1661-1682.
Bidabad, B; 1990. Difference Equations and the Stability of Equilibrium Dynamism, http://www.bidabad.com/doc/difference-equations.pdf
Bidabad, Bijan, Abul Hassan, Dynamic Lag Structure of Deposits and Loans Interest Rates and Business Cycles Formation. Journal of Financial Regulation and Compliance, Vol. 25 Issue: 2, pp.114-132, 2017.
http://dx.doi.org/10.1108/JFRC-09-2016-0078
Bidabad, B; 2010. Stabilizing Business Cycles by PLS Banking and Ethic Economics, http://www.bidabad.com/doc/pls-business-cycles-en.pdf
Bidabad, B; 2010. Fluctuations and Business Cycles Prevention by New Financial Instruments and Banking Structure Reform. http://www.bidabad.com/doc/Fluctuations-and-Cycles.pdf
Bidabad, Bijan, Economic-juristic analysis of usury in consumption and investment loans and contemporary jurisprudence shortages in exploring legislator commandments. Proceeding of the 2nd International Islamic Banking Conference. The Monash University of Malaysia. 9-10 September 2004. Reprinted in: National Interest, Journal of the Center for Strategic Research, Vol. 2, No. 1, winter 2006, pp. 72-90. Tehran, Iran. Republished (revised) in: International Journal of Islamic Business & Management, 3(2), 1-15, 2019.
https://www.cribfb.com/journal/index.php/ijibm/article/view/275
http://www.bidabad.com/doc/reba-en.pdf
http://www.bidabad.com/doc/reba-fa.pdf
Bidabad, Bijan, Non-Usury Bank Corporation (NUBankCo), The Solution to Islamic banking, Proceeding of the 3rd International Islamic Banking and Finance Conference, The Monash University, KL, Malaysia, 16-17 November, 2005. International Journal of Shari’ah and Corporate Governance Research, 2(1), 53-66, 2019.
https://www.cribfb.com/journal/index.php/ijscgr/article/view/276
http://www.bidabad.com/doc/NUBankCo-en.pdf
Blankenau, W., Kose, M.A; Yi, K. M; 2001. Can World Real Interest Rates Explain Business Cycles in A Small Open Economy? Journal of Economic Dynamics & Control, 25, 867-889.
Block, W; Barnett II W; 2007. On Laidler Regarding The Austrian Business Cycle Theory. Review of Austrian Economics. Vol. 20 (1): 43-61.
Fisher, I; 1933. The Debt-Deflation Theory of Great Depressions, Econometrica, Vol. 1 (4),. 337-357 http://fraser.stlouisfed.org/docs/meltzer/fisdeb33.pdf
IMF (2010), International Financial Statistics 2010, Country Notes, USA; http://www.imfstatistics.org
Ivanova, D; Lahiri, K; Seitz, F; 2000. Interest Rate Spreads as Predictors of German Inflation and Business Cycles. International Journal of Forecasting 16: 39–58.
Minsky, H; 1992. The Financial Instability Hypothesis, Working Paper No 74, May 1992, pp. 6-8. http://www.levy.org/pubs/wp74.pdf
Published
2019-06-01
How to Cite
Bidabad, B., & Hassan, A. (2019). Does the Interest Rate Form Business Cycle?. International Journal of Accounting & Finance Review, 4(1), 29-34. https://doi.org/10.46281/ijafr.v4i1.281
Section
Regular Research Article/ Short Communication Article
Copyright (c) 2019 Bijan Bidabad,Abul Hassan
This work is licensed under a Creative Commons Attribution 4.0 International License.
