Why Interest Rate Cuts Rarely Stimulate Economic Growth

Intro: Despite the almost universal belief that central bank interest rate cuts provide a boost to the economy, most of the time they have little-to-no stimulatory effect. Rate cuts usually just reflect prior changes in the real economy’s savings/investment balance, and typically provide little insight into future growth. The financial media is fixated on interest…

The Trouble with Activist Monetary Policy

Intro: As we explained in ‘Why Interest Rate Cuts Rarely Stimulate Economic Growth’, the majority of interest rate cuts are ineffective at stimulating economic growth as they tend to merely reflect changes in the saving/investment balance that have already occurred. However, central banks can, and do, engage in ‘activist’ monetary policy aimed at boosting asset…