Interest rate effects on intertemporal consumption: Do financial regulation and deregulation matter?

Edward J. Sullivan, Raymond Lombra

Research output: Contribution to journalArticle

Abstract

The changing role of interest rates and noninterest loan characteristics in clearing the credit market that households face are examined analytically and empirically. In particular, the nonrate terms on loans are analyzed within a two-period Fisherian model. Empirical evidence presented indicates that (1) nonrate terms on loans were an important element of the "real" real interest rate and a determinant of household spending on durables and housing from the mid-1960s through the late 1970s; and (2) such terms have become somewhat less important as deregulation and innovation have proceeded. The implications of this research are that conventionally measured real interest rates are not directly comparable across time and that intertemporal consumption models that ignore nonrate terms and their changing role are misspecified.

Original languageEnglish (US)
Pages (from-to)115-125
Number of pages11
JournalJournal of Economics and Business
Volume44
Issue number2
DOIs
StatePublished - May 1992

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting(all)
  • Economics and Econometrics

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