Scandinavian Working Papers in Business Administration

Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science

No 2021/8: An age-structured model for the effect of interest rate changes on consumption

Roman Kozlov ()
Additional contact information
Roman Kozlov: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway

Abstract: A model for the effect of an interest rate change on household consumption is developed. The approach is age-structured: households reconsider their consumption patterns at the moment of the interest rate change and the changes of the consumption patterns are age dependent. These changes for different age groups contribute to the modification of aggregate consumption. Numerical simulation shows that a decrease of the interest rate leads to a consumption boost (a substantial increase of consumption in the short run), which diminishes as time passes and consumption gets fully adjusted to the new interest rate value. The consumption boost is achieved by an increase of the debt load.

Keywords: Interest rate change; consumption; aggregate consumption; debt load

JEL-codes: E20; E21; E43; G51

35 pages, August 30, 2021

Full text files

2771796 PDF-file Full text

Download statistics

Questions (including download problems) about the papers in this series should be directed to Stein Fossen ()
Report other problems with accessing this service to Sune Karlsson ().

This page generated on 2024-05-28 04:36:03.