Interest rate as a tool of shaping economic activity in monetary theory of business cycle

The aim of this article is empirical verification of monetary theory of business cycle. The article consists of two parts: theoretical and empirical. The first part describes briefly causes of economic fluctuations and the role of interest rate based on monetary theory of business cycle. The empirical part of the paper investigates relations between the level of economic activity and real interest rate for Irish economy in 1999–2011. The main findings are in line with the thesis of monetary theory of business cycle that there is quite significant response of economic activity with respect to changes in the level of real interest rate