This thesis examines how the volatility of interest rate's spread can affect the economic variables. Specifically, I investigate whether and to what extend uncertainty of the financial market, measured by the volatility of interest rate's spread, can negatively affect decision-making of consumption and investment.
The volatility of interest rate's spread estimated via Exponential GARCH model, which has not only asymmetric effect but also leverage effect, verify a fact that the volatility extends an economic slowdown than an economic boom. In my analysis, I look for empirical evidence through OLS method that how the volatility of interest rate's spread by EGARCH models can effect on consumption and investment. I find that this volatility(uncertainty) has a negative effect on consumption and investment for a short term. I also examine the short and long term influence estimation by using of the VECM model. As a result, the volitility affects continuously negative effect on both short and long term consumption and investment.
In the last analysis, the volatility of the financial market suggests negative effect on real-economy by restricting decision - marking of economic agent.
In other words, the stabilization of the financial market suggests the fact that is an important prerequisite condition for the stabilization of real-economy.