Effects of Changes in Interest Rates on Private Household Income and Demand

Effects of Changes in Interest Rates on Private Household Income and Demand

The level of interest rates has been extraordinarily low in the last few years in Germany and provokes an analysis of the effects of lasting interest rate cuts on the income situation and demand on the part of private households. In principle, there are two contrary effects: interest rate cuts have positive effects on the income of borrowers if their interest burden declines after the fixed-interest periods have expired or in the case of variable-rate loans declines in accordance with the market interest level. On the other hand, investors experience negative income effects if capital investments due have to be reinvested or if the terms of variable-rate investments deteriorate. Moreover, one can assume that these income effects impact differently on the savings and demand patterns of households belonging to different income and property brackets. A quantitative estimate of these effects on income and demand is made in the project on the basis of the income and consumption surveys carried out by the Statistische Bundesamt (Federal Statistics Office).

Project members

Peter Westerheide

Peter Westerheide

Project Coordinator
Research Associate

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Client/Allowance
Landeskreditbank Baden-Württemberg - Förderbank, Karlsruhe, DE

Selected Publications

Einkommens- und Nachfrageeffekte von Zinsänderungen

Westerheide, Peter (2001), Einkommens- und Nachfrageeffekte von Zinsänderungen, Kredit und Kapital 3/2001 , 303-326

Contact

Research Associate
Dr. Peter Westerheide
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