14. Interest rates

Due to the fixed exchange rate policy, the Danish interest rates are largely determined by conditions abroad. They are basically exogenous like foreign prices and foreign demand. In the experiment, both the domestic and foreign interest rates in ADAM are permanently reduced by 1 percentage point i.e. from 3.5 percent in the baseline scenario to 2.5 percent. The experiment does not take into account that a general fall in foreign interest rates can stimulate foreign markets and foreign competitiveness. Thus, the experiment maybe interpreted as a 1 percentage point reduction in the interest rate differential to the Euro zone interest rates. For a broader discussion of the interest rate experiment see grh12912. The following two sections present the effects of reducing interest rates - with and without supply effects on exports and balanced public budget.


hmtoggle_arrow1A. Interest rates
hmtoggle_arrow1B. Interest rates - including supply effects on exports
hmtoggle_arrow1C. Interest rates - balanced budget