Impacts of the Interest Rate Increases on the US Technology Industry: Time Series Evidence

Abstract

The interest rate increases by the United States Federal Reserve might have some impacts on the technology industry. This paper intends to find out how the stock prices under the monetary policies compare to the ones without the policies in the time span of a few days, weeks, and months. The prices that would have occurred without the policies are predicted using the ARIMA model. It is found that the technology stock price is approximately a quarter lower than the predicted price in the time span of a few months after the initial interest rate rise. There is a clear decreasing trend in the time span of a few weeks, though there is no significant impact on the stock price in the following few days after the interest rate rise. This paper innovates by comparing the effects of different time spans, which are quite different in terms of the scale of the effects. Using the findings, the suggestions for investors are that one should prepare themselves for a significant drop in the technology industry stock price in the long-term when there are similar policies, but should not panic in the short-term when the market has not reacted efficiently.