Original Research

Modelling the impact of changes in the interest rates on the economy: An Austrian perspective

P Le Roux, B Ismail
South African Journal of Economic and Management Sciences | Vol 7, No 1 | a1433 | DOI: https://doi.org/10.4102/sajems.v7i1.1433 | © 2004 P Le Roux, B Ismail | This work is licensed under CC Attribution 4.0
Submitted: 09 July 2004 | Published: 23 July 2004

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P Le Roux, Nelson Mandela Metropolitan University, South Africa
B Ismail, NMMU

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Abstract

Even though econometric models and yield curve analysis are useful in assessing the impact of interest rate changes on the economic structure, their power to predict the magnitude and direction of swings in the business cycle is often restricted to the use of short-term interest rates. From an Austrian school perspective on interest rates, empirical evidence suggests that the profitability of heavy industries further downstream outperforms that of light industries in the initial stages of monetary easing, due to a rising demand for investment goods and a rise in capacity utilisation levels. This paper assesses the impact of interest rates changes on the productive structure of the economy by taking into account the effect thereof on sector earnings and ultimately share prices.

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