Interest Rate and Economic Growth: The Transmission Mechanism

In this paper I will be examining how interest rates can impact economic growth. International economic practices and theoretical concepts in the various countries has been discussed. Elasticities of demand may mitigate the effects of high nominal and real interest rates on economic growth, provided that there are mechanisms like low inflation expectations, foreign investors' love for the economy, technological transfer effect and build-up of domestic saving. By using panel data for different countries all over the World, the effectiveness of the interest rate transmission into economic growth has been examined in this paper.