1. Department of World Economy, Baku Engineering University, Azerbaijan
2. Department of Public & International Affairs, ADA University, Baku, Azerbaijan.
3. SABAH Faculty, Azerbaijan State University of Economics (UNEC), Baku, Azerbaijan.
The paper examines the relationship between income & inflation with
interest rates of loans in Azerbaijan by applying adjustments to the
liquidity preference framework. Based on the research findings, exchange
rate, GDP, money supply and household savings are the determinants of
credit interest rates given in USD, but not in AZN. Moreover, inflation and
nominal income of the population have a statistically significant impact
over loan interest rates neither in AZN nor in USD. Hereby, the paper does
not promulgate that the assumptions of Keynesian economics upon the
positive correlation of income & price level with interest rates are valid in
the case of Azerbaijan within a minorly modified model. Furthermore, the
more households save money, the more financial institutions should try to
incentivize customers to take out loans by determining interest rates at
lower rates since an increase in total savings plummets the demand for