Impacts of Dollar Depreciation and Low Deposit Rates on the US Economy

Abstract

Extending Irving Fisher's intertemporal budget constraint, applying the GARCH model, and based on the equilibrium in aggregate demand and aggregate supply, it is found that a weak US dollar helps real output and that low deposit rates reduce interest income, consumption spending and aggregate demand. Real GDP is also negatively affected by the personal loan rate and the business lending rate, and it is positively influenced by deficit spending, household wealth, and consumer confidence. In conducting monetary policy, the Federal Reserve may need to monitor the loss in interest income and other adverse impacts due to low deposit rates.