Transmission and Impact of High Interest Rates

Over the past year and half, many central banks in large open economies have set interest rates at decade highs in response to inflationary pressures that materialized following the Covid-19 pandemic. The length of time central banks will keep interest rates at contractionary levels is unknown and could vary by jurisdiction. Additionally, the impact of high interest rates on an economy is not immediate; transmission can be “long and variable” and have implications for interest rates and policy making in other jurisdictions. The focus of the Capstone project will be to examine the impact of high interest rates globally. The Capstone team will select several jurisdictions to analyze, and they will assess how elevated interest rates in some large economies have impacted policy considerations for those central banks. They may also identify potential factors that might affect the transmission of interest rates.