Consumer Industry in this Turn’s Monetary Policy: Evidence from Necessity and Non-Necessity Goods in US

Abstract

The US Federal Reserve's interest rates have been acting as main factors that influence the economy, especially the consumers' consumption aspect of the market, since its very beginning. This paper researches the impact of Federal Reserve's interest rates hike on the consumption goods market. While the scale of the consumption goods market as a whole has too many niche industries that does not necessarily affect the common consumers, and there are too many factors to control for. Necessity goods market and non-necessity goods market data from the S&P 500 Index are chosen to be the dependent variables to represent the research purpose. On the other hand, Federal Reserve’s interest rates consists multiple variables and they all have different effects on the economy, the exchange rate between US dollars and Chinese RMB is chosen to be the independent variable in this research for its stability and strong link to the interest rates change. This paper uses VAR model and ARMA-GARCH Model to estimate such impact. The result shows that the effects of Federal Reserve's interest rates hike on necessity goods and non-necessity goods are overall negative effects. In particular, the interest rates hike affects non-necessity goods market way more than it affects the necessity goods market.