Analyzing the Impact of Interest Rate on Dry Bulk Freight Market with Time-Varying Causality Method

Abstract

The interest rates significantly affect maritime markets, both with their role in determining the cost of ship investments and their role in determining the demand for goods in the world economy. We examined the impact on the freight market, which is the fundamental of other maritime markets and is much more dynamic than them. Considering that change in interest rates affects the world economy, but this effect may not survive throughout the period, we applied the analysis first with a linear approach and then with a time-varying approach. The federal funds rate is used as an indicator of global interest rates, and the Baltic Dry Index (BDI) is used as an indicator of the dry bulk freight market. As a result of analysis performed using a data set consisting of 302 monthly observations covering the period between 1995 and 2020, it was determined that the significant relationship does not exist throughout the whole sample, it exists only at certain periods, and the significant effect occurs when BDI tends to increase and decrease. Thus, it was determined that changes in interest rates not only affect the global economy but also the trend of the dry bulk freight market.