Interest rate and its effects for a national economy
Abstract
Economic evolution led to the emergence of the two sectors: real and financial ones. In the conditions of globalization, the financial sector has the increasingly strong effects for the economic development, which clear evidence is the latest financial crisis. Use of the bank interest rate as an important monetary tool for sustaining the stability of the economic system and economic stimuli has been a serious problem for many countries, including Ukraine.
The objective of the study is to analyze the effects of the interesting rate for the rates of economic growth in Ukraine and the EU.
The theoretical part of the study involves a critical review of the concepts of "economic development of a country", “development“ and "growth ", demonstration of the difference and the causality between "development" and "growth “ concepts. Reference to the Solow model and its algorithm is made, to shore that its troo components, accumulation of capital and investment, feature correlations with the interest rate.
A comparative analysis of statistical data series on interest rate and GDP, taken as a proxy for economic development, in Ukraine and the EU is made, to shore the difference in the correlation between the interest rate and GDP in Ukraine and the EU: inverse correlation in Ukraine and direct correlation in the EU. Therefore, the National Bank of Ukraine needs to implement the flexible monetary policy aiming to reduce the refinancing rate of the domestic commercial banks.
Also, by use of statistics series for the E U and Ukraine it is shown that the interest rate can be (in the EU case) a determinant of the inflation rate within an economic system.
It is emphasized that the scientifically substantiated results produced from the study can contribute in soiling an important macroeconomic problem of Ukraine — building up the innovation and investment driven model of economic development.
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References
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