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Regression analysis of factors impacting interest rates

Author

Listed:
  • Guizhou Wang

    (Faculty of Science and Technology, University of Stavanger, 4036 Stavanger, Norway)

  • Kjell Hausken

    (Faculty of Science and Technology, University of Stavanger, 4036 Stavanger, Norway)

Abstract

This paper investigates the factors that interact with interest rates. The results show that interest rates positively correlate with deviations in inflation, the logarithm of the real GDP (gross domestic product) ratio, the logarithm of the money supply ratio, deviations in unemployment rates, money velocity, deficit, and the dollar index. The interest rates negatively correlate with debt, the Dow Jones Industrial Average (DJIA), debt to GDP ratio, and real GDP growth rate. Regression analysis shows with statistical significance an increase in interest rates with deviations in inflation, money velocity, the dollar index, and a decrease with the DJIA. The analysis is refined by removing insignificant variables and addressing a multicollinearity problem. The results could provide governments and central banks with focal points for developing interest rate policies.

Suggested Citation

  • Guizhou Wang & Kjell Hausken, 2025. "Regression analysis of factors impacting interest rates," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 12(01), pages 1-20, March.
    • Handle: RePEc:wsi:ijfexx:v:12:y:2025:i:01:n:s2424786323500524
    DOI: 10.1142/S2424786323500524
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    More about this item

    Keywords

    Monetary policy; Taylor rule; interest rate; inflation; real GDP; real GDP growth rate; money supply; unemployment; money velocity; debt to GDP ratio; Dow Jones Industrial Average; regression analysis;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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