Zinseffekt

Zinseffekt, or the interest-rate effect, is a concept in economics that describes how changes in interest rates influence economic decisions and macroeconomic variables. It is commonly used to explain how monetary policy or shifts in money supply affect investment, consumption, and overall demand in an economy.

In macroeconomic analysis, a decline in short-term interest rates lowers the cost of borrowing. This tends to stimulate investment in capital goods and increases consumer spending financed by credit, which raises aggregate demand and can boost output in the short run. Conversely, higher interest rates raise the borrowing cost, dampen investment and credit-based consumption, and reduce aggregate demand. The effect also operates through asset prices: lower rates tend to raise the prices of interest-bearing assets, increasing household wealth and potentially boosting consumption. The Zinseffekt is a central element of the monetary transmission mechanism and helps explain movements along the IS curve in standard macro models.

In financial markets, the term is sometimes used to describe the inverse relationship between interest rates and bond prices: when rates fall, bond prices rise, and when rates rise, bond prices fall. This price–yield interaction is a practical manifestation of the Zinseffekt for fixed-income investors.

Limitations and scope: the strength of the Zinseffekt depends on factors such as credit conditions, expectations, and the presence of a liquidity trap or near-zero bound. In such environments, changes in rates may have a muted impact on spending and investment.

See also: money supply, monetary policy, IS-LM model, Fisher effect, bond prices, liquidity trap.