An analysis of relation between interest rate spread and economic activities of OECD countries using panel data analysis

The aim of this study is to see long run relation between interest rate spread and economic activities for OECD countries. In this context, the research focused on the effect of spread on main maco-economic indicators such as industrial production, inflation and unemployment rate between 2005 and 2015 by using monthly data. Apart from spread, stock exchange index, M1 and long term interest rates were used to see their influence on macro-economic variables. Panel data analysis was employed to find long run linkage between the variables. The tools that necessary for panel analysis were employed. For instance panel unit root tests, panel cointegration tests, panel estimation methods were employed in the analysis. The results reveal that while interest rate spread still has positive relation with economic activities, as pointed by some authors, the degree of positiveness seems to be declining over the years. However, due to macro-economic development around the World, some variables such as money supply is losing its significance in explaining economic activities. This happens at the time of the economies that are in a new state, which some economists call as "New Normal". Because, interest rates in many countries are in near-zero level and has been staying there for a along time since the financial crisis of 2008. Despite these lower rates, economic activities could not reach the level desired up until 2016. Although inflation seems to be explained well by all financial indicators, the relation between unemployment rate was not found for spread.