Federal funds rate and unemployment relationship: does business confidence matter?
File(s)
Date
2014-04Author
Sam, Katie A.
Publisher
University of Wisconsin--Stout. Research Services
Advisor(s)
Fanta, Fassil
Metadata
Show full item recordAbstract
Following the 2008 financial crisis, the United States’
economy went into one of the most severe recessions since
the Great Depression. In an attempt to stimulate the economy,
the Federal Reserve lowered the federal funds rate to near
zero in 2008. The unemployment decrease is not as large or
fast as many had hoped, spurring much debate on whether
business confidence may play a role in the federal funds rate’s
inability to affect the unemployment rate. It was hypothesized
that high levels of economic policy uncertainty and low levels
of business confidence negatively affect the unemployment
rate. Using a regression analysis, results indicate that a
negative contemporaneous relation exists between the federal
funds rate and unemployment. Given the long term positive
relationship between the federal funds rate and unemployment,
lowering the federal funds rate should have brought down the
unemployment rate, but that hasn’t happened. The persistently
high unemployment exists because the low level of business
confidence is deterring businesses from hiring in the face of
economic policy uncertainty despite the incentive of a low
interest rate’s incentive to do so.
Subject
business confidence
federal funds rate
unemployment rate
Permanent Link
http://digital.library.wisc.edu/1793/77330Description
Research article with tables and graphs.
Citation
Sam, K. A. (2014). Federal funds rate and unemployment relationship: does business confidence matter? University of Wisconsin-Stout Journal of Student Research, 13, 112-126.