The Impact of the Interest Rate on Industrial Production During the 2008 Financial Crisis and the COVID-19 Pandemic

Year 2024, Volume: 26 Issue: 2, 427 - 446, 12.08.2024

Nezir Köse , Emre Ünal

https://doi.org/10.26745/ahbvuibfd.1459450

Abstract

The impact of the real interest rate on industrial production growth in developed and developing countries was analyzed during the 2008 financial crisis and the COVID-19 pandemic. Panel data analysis was implemented for the monthly period between January 2002 and December 2020. The impact of the real interest rate on industrial production growth was negative for both developed and developing countries in all periods. Moreover, during the 2008 financial crisis, the relationship between the real interest rate and industrial production growth was negative for both developed and developing countries. However, the effect of the real interest rate was stronger in developed countries. During the COVID-19 pandemic, the impact of the real interest rate on industrial production growth has been much stronger than that of the 2008 financial crisis. Its effect has also been more significant in developed countries. The result indicates that during the crisis and the pandemic, a decrease in the real interest rate plays an important role in stimulating industrial production. Pulling the real interest rate down can be an effective tool for promoting growth and can lessen negative consequences in economic activities during the COVID-19 pandemic. Nevertheless, as the inflation rate is very low in developed countries, the risk of depreciation in the exchange rate in developing countries can be limited following expansionary monetary policy. Hence, other alternatives such as government intervention into economic activities by fiscal policy increase in importance beside monetary policy.

Keywords

2008 financial crisis, COVID-19 pandemic, industrial production, interest rate, panel data analysis

2008 Finansal Krizi ve COVID-19 Salgını Sırasında Faiz Oranının Sanayi Üretimi Üzerindeki Etkisi

Abstract

Gelişmiş ve gelişmekte olan ülkelerde reel faiz oranının sanayi üretimi büyümesi üzerindeki etkisi, 2008 finansal krizi ve COVID-19 salgını döneminde analiz edilmiştir. Panel veri analizi Ocak 2002 ile Aralık 2020 arasındaki aylık dönem için uygulanmıştır. Reel faiz oranının sanayi üretimi büyümesi üzerindeki etkisi hem gelişmiş hem de gelişmekte olan ülkeler için tüm dönemlerde olumsuz olmuştur. Üstelik 2008 finansal krizi sırasında reel faiz oranı ile sanayi üretimi büyümesi arasındaki ilişki hem gelişmiş hem de gelişmekte olan ülkeler için negatiftir. Ancak gelişmiş ülkelerde reel faiz oranının etkisi daha güçlü olmuştur. COVID-19 salgını sırasında reel faiz oranının sanayi üretimi büyümesi üzerindeki etkisi 2008 finansal krizinden çok daha güçlü olmuştur. Etkisi gelişmiş ülkelerde de daha belirgin olmuştur. Sonuç, kriz ve salgın sırasında reel faiz oranındaki düşüşün sanayi üretimini canlandırmada önemli bir rol oynadığını gösteriyor. Reel faiz oranının aşağı çekilmesi, büyümeyi teşvik etmek için etkili bir araç olabilir ve COVID-19 salgını sırasında ekonomik faaliyetlerdeki olumsuz sonuçları azaltabilir. Fakat gelişmiş ülkelerde enflasyon oranı oldukça düşük olduğundan, gelişmekte olan ülkelerde genişletici para politikasının ardından döviz kurundaki değer kaybı riski sınırlı olabiliyor. Dolayısıyla para politikasının yanı sıra devletin maliye politikası yoluyla ekonomik faaliyetlere müdahale etmesi gibi diğer alternatifler yöntemler önem kazanmaktadır.

Keywords

2008 finansal krizi, COVID-19 salgını, sanayi üretimi, panel veri analizi

References

• Abbassi, P. and Linzert, T. (2012) The effectiveness of monetary policy in steering money market rates during the financial crisis, Journal of Macroeconomics, 34: 945–954.
• Ahad, M., Dar, A.A. and Imran, M. (2019) Does Financial Development Promote Industrial Production in Pakistan? Evidence from Combined Cointegration and Causality Approach, Global Business Review, 20(2): 297–312.
• Albonico, A. and Tirelli, P. (2020) Financial crises and sudden stops: Was the European monetary union crisis different?, Economic Modelling, 93: 13–26.
• Altig, D., Baker, S., Barrero, J.M., Bloom, N., Bunn, P., Chen, S., Davis, S.J., Leather, J., Meyer, B., Mihaylov, E., Mizen, P., Parker, N., Renault, T., Smietanka, P. and Thwaites, G. (2020) Economic uncertainty before and during the COVID-19 pandemic, Journal of Public Economics, 191: 104274.
• Aristei, D. and Gallo, M. (2014) Interest rate pass-through in the Euro area during thefinancial crisis: A multivariate regime-switching approach, Journal of Policy Modeling, 36: 273–295.
• Aron, J. and Muellbauer, J. (2002) Interest Rates Effects on Output: Evidence from a GDP Forecasting Model for South Africa, IMF Staff Papers, Vol. 49, Special Issue.
• Baker, S.R., Bloom, N., Davis, S.J., Kost, K.J., Sammon, M.C. and Viratyosin, T. (2020) The Unprecedented Stock Market Impact of COVID-19, NBER Working Paper Series, Working Paper 26945.
• Bhar, R. and Malliaris, A.G. (2020) Modeling U.S. monetary policy during the global financial crisis and lessons for Covid-19, Journal of Policy Modeling, 43(1): 15-33.
• Blanchard, O. and Brancaccio, E. (2019) Crisis and Revolution in Economic Theory and Policy: A Debate, Review of Political Economy, 31(2): 271–287.
• Buchner, M. (2020) Fiscal Policy in an Age of Secular Stagnation, Comparative Economic Studies, 62: 398–429.
• Cachanosky, N. and Hoffmann, A. (2016) Monetary Policy, the Composition of GDP and Crisis Duration in Europe, Global Economic Review, 45(2): 206-219.
• Cruz-Garcia, P., de Guevara, J.F. and Maudos, J. (2019) Determinants of bank’s interest margin in the aftermath of the crisis: the effect of interest rates and the yield curve slope, Empirical Economics, 56: 341-365.
• Colombo, V. and Paccagnini, A. (2020) Does the credit supply shock have asymmetric effects on macroeconomic variables? Economics Letters, 188: 108958.
• Dimsdale, N.H. (2009) The Financial Crisis of 2007–9 and the British Experience, Oxonomics, 4(1): 1-9.
• Doh, T. (2019) The Trend Real Interest Rate and Stagnation Risk: Bayesian Exponential Tilting with Survey Data, kcFED Research Working Papers, RWP17-08.
• Egea, F.B. and Hierro, L.A. (2019) Transmission of monetary policy in the US and EU in times of expansion and crisis, Journal of Policy Modeling, 41: 763–783.
• Gertler, M. and Gilchrist, S. (2018) What Happened: Financial Factors in the Great Recession, Journal of Economic Perspectives, 32(3): 3-30.
• Irandoust, M. (2020) The effectiveness of monetary policy and output fluctuations: An asymmetric analysis, Australian Economic Papers, 59(2): 161-181.
• Honda, Y. and Inoue, H. (2019) The effectiveness of the negative interest rate policy in Japan: An early assessment, Journal of The Japanese and International Economies, 52: 142–153.
• Hristov, N., Hülsewig, O. and Wollmershäuser, T. (2014) The interest rate pass-through in the Euro area during the global financial crisis, Journal of Banking & Finance, 48: 104–119.
• Karagiannis, S., Panagopoulos, Y. and Vlamis, P. (2010) Interest rate pass-through in Europe and the US: Monetary policy after the financial crisis, Journal of Policy Modeling, 32: 323–338.
• Kuttner, K.N. (2018) Outside the Box: Unconventional Monetary Policy in the Great Recession and Beyond, Journal of Economic Perspectives, 32(4): 121-146.
• Ma, Q. (2017) Contribution of interest rate control to China’s economic development, Journal of Chinese Economic and Business Studies, 15(4): 325-352.
• Munir, K. (2018) Dynamic effects of monetary policy on output and prices in Pakistan: a disaggregate analysis, Journal of The Asia Pacific Economy, 23(1): 99-118.
• Nicola, M., Alsafi, Z., Sohrabi, C., Kerwan, A., Al-Jabir, A., Iosifidis, C., Agha, M. and Agha, R. (2020) The socio-economic implications of the coronavirus pandemic (COVID-19): A review, International Journal of Surgery, 78: 185–193.
• Oravský, R., Tóth, P. and Bánociová, A. (2020) The Ability of Selected European Countries to Face the Impending Economic Crisis Caused by COVID-19 in the Context of the Global Economic Crisis of 2008, Journal of Risk and Financial Management, 13: 179.
• Qiu, R.T.R., Park, J., Li, S. and Song, H. (2020) Social costs of tourism during the COVID-19 pandemic, Annals of Tourism Research, 84: 102994.
• Shaukat, B., Zhu, Q. and Khan, M.I. (2019) Real interest rate and economic growth: A statistical exploration for transitory economies, Physica A, 534: 122193.
• Yazdanfar, D. and Öhman, P. (2020) The 2008–2009 global financial crisis and the cost of debt capital among SMEs: Swedish evidence, Journal of Economic Studies, 48(6): 1097-1110.
• Zhang, D., Hu, M. and Ji, Q. (2020) Financial markets under the global pandemic of COVID-19, Finance Research Letters, 36: 101528.