Crimes and Interest Rate (Part 2)

Crimes and Interest Rate (Part 2)

I have collected the data of real interest rate and crimes rate in the US from year 1968 to 2014. Crimes rate is defined as number of crimes per 100,000 population, thus effect of population growth in crimes number is considered. Before looking at econometrics analysis, let first take a look of the correlation coefficient between interest rate and crimes rate.

Correlation coefficient between real interest rate to 

Murder: 0.78

Rape: 0.37

Robbery: 0.17

Aggravated assault: -0.39

Burglary: 0.87

Larceny-theft: 0.70

Motor vehicle theft: 0.57

Data shows that there is a positive relation between real interest rate and crime rate. Moreover, the correlation between real interest rate and property crimes (the bottom three) is higher than the correlation between real interest rate and violent crimes (the top four). This shows that maybe impatient people just want to have earlier consumption rather than hurting others. 

However, can we conclude that higher interest rate leads to higher crime rate? Surely no unless we can control the effect of all other variables that affecting crime rate, including GDP, unemployment rate, Gini coefficient, etc. Therefore, to investigate the casuality, we have to conduct sophisticated econometrics technique in order to isolate the effect of interest rate from all other variables. 

I have calculated the first difference of interest rate and crime rate, and conducted the HP filter to the data. As a result, I can isolate the effect of the change in interest rate on change in crime rate. The followings are the effect of one percent increase in real interest rate of crime rate, parenthess is the t-statistics:

 

Murder: 2.46 (2.893)

Rape: 4.05 (3.695)

Robbery: 5.86 (6.271)

Aggravated assault: 3.00 (3.805)

Burglary: 4.01 (5.072)

Larceny-theft: 3.30 (5.043)

Motor vehicle theft: 1.85 (1.96)

The regression result shows that an increase in real interest rate will cause a higher crime rate, and the coefficients are all statistically significant. One percent increase in interest rate result in 2.46% increase in murder, 4.05% increase in rape, 5.86% increase in robbery, etc...

Therefore, data confirm that higher interest rate result in a higher crime rates.