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Article
INTEREST RATES AND ECONOMIC GROWTH: STRENGTH OF THE NEXUS
Marinko Skare, Manuel Benazic
ABSTRACT.In this article, the authors analyse the interest rates - growth nexus in the Croatian economy contrasting the standard growth theory assumption. Solow-Swan growth model implies positive correlation between the interest rates and growth. However, using quarterly data from 1996 to 2013 for Croatia, a negative correlation between the interest rates and growth has been found. Slower economic growth is associated with the higher interest rates regimes. Only a weak effect of GDP on interest rates on deposits is isolated in line with the results found by Caroll and Summers (2014) and Bosworth (2014). The nexus between the interest rates and growth is a fact that must be thoroughly investigated to improve the standard growth theories disregarding this important relationship.
KEYWORDS: interest rates, growth, Solow-Swan, nexus, subset VAR, Croatia.
JEL classification: E40, E47, E43, O47.