Puerto Rico Economic Pulse ©

September 1999: Can Rising Interest Rates Put the Brakes on the Economic Expansion?

How Sensitive is the Puerto Rico Economy to Interest Rates?

A gyrating US stock market has made investors fearful of interest rate hikes. Is that panic justified in Puerto Rico? Financial market deregulation and innovation, along with the rising importance of globalization have changed the structure of Puerto Rico`s economy. Our empirical evidence suggests a reduction in the economy`s overall interest sensitivity. This reduction is not spread equally across all sectors of the economy, however compsumption and residential investment have become less interest sensitive, while net exports now fall rather than rise in response to an interest rate hike.