Effect of interest rates on firms\u27 performance in developing European countries

Abstract

The central bank uses monetary policy to maintain the balance of the economy in the country. Each country in Europe has a central body that regulates the total supply of money and supports economic expansion. By using expansionary and contractionary monetary policies the central bank in each country targets inflation and keeps unemployment low. The central bank frequently employs the discount rate, open market operations, and reserve requirements as its three primary monetary policy tools. Through monetary policy, the central bank affects the profits, revenue, income, investment, turnover, and long-term and short-term liabilities of businesses. Adjusting interest rates influences the borrowing and expectations of firms. In order to grow, firms need to focus on labor, technology, marketing, investing, capital, and customers. This research focuses on the effect that interest rates have on businesses\u27 performance in European countries, particularly in nations that are members of the European Union but are not in the Eurozone such as Bulgaria, the Czech Republic, Hungary, Poland, Romania, and Sweden as well as East European nations that are neither members of the EU nor the Eurozone such as Albania, Azerbaijan, Belarus, Bosnia and Herzegovina, Georgia, Kazakhstan, Moldova, Montenegro, North Macedonia, Serbia, and Ukraine. Using 1995-2019 data from the statistical websites of each country and the World Bank, this study finds that interest rates have a negative effect on firms\u27 performance in these European countries

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Last time updated on 17/10/2023

This paper was published in Union College: Union | Digital Works.

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