Abstract
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 extracting loans.
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