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Is there any relationship between the rates of interest and profit in the U.S. economy?

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  • Ivan Mendieta-Muñoz

Abstract

This paper studies the empirical relationship between the Federal funds effective rate and the rate of profit or profit-to-capital ratio in the U.S. economy. The linkages between these two variables are studied: 1) at business-cycle frequencies using various filters and employing cross-correlation, regression and simulation analysis; and 2) using Vector Autoregressive models that unveil the dynamic interactions between the variables. The different empirical results reveal that positive shocks in the fed funds interest rate generate negative responses of the rate of profit, thus corroborating previous findings that show that a tight monetary policy is associated with lower aggregate profitability levels.

Suggested Citation

  • Ivan Mendieta-Muñoz, 2014. "Is there any relationship between the rates of interest and profit in the U.S. economy?," Studies in Economics 1416, School of Economics, University of Kent.
    • Handle: RePEc:ukc:ukcedp:1416
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    More about this item

    Keywords

    Fed funds effective real rate; rate of profit; U.S. economy; aggregate profitability;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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