the myth: lower interest rates result in higher growth and higher rates result in lower growth Archived Message Posted by mike on August 1, 2019, 5:10 pm, in reply to "Missing Issues on the Economics of a Fed Rate Cut" the empirical evidence Reconsidering Monetary Policy: An Empirical Examination of the Relationship Between Interest Rates and Nominal GDP Growth in the U.S., U.K., Germany and Japan By Kang-Soek Lee & Richard A.Werner Abstract The rate of interest – the price of money – is said to be a key policy tool. Economics has in general emphasised prices. This theoretical bias results from the axiomatic-deductive methodology centring on equilibrium. Without equilibrium, quantity constraints are more important than prices in determining market outcomes. In disequilibrium, interest rates should be far less useful as policy variable, and economics should be more concerned with quantities (including resource constraints). To investigate, we test the received belief that lower interest rates result in higher growth and higher rates result in lower growth. Examining the relationship between 3-month and 10-year benchmark rates and nominal GDP growth over half a century in four of the five largest economies we find that interest rates follow GDP growth and are consistently positively correlated with growth. If policy-makers really aimed at setting rates consistent with a recovery, they would need to raise them. We conclude that conventional monetary policy as operated by central banks for the past half-century is fundamentally flawed. Policy-makers had better focus on the quantity variables that cause growth. https://www.sciencedirect.com/science/article/pii/S0921800916307510?via%3Dihub Message Thread: Missing Issues on the Economics of a Fed Rate Cut - Keith-264 August 1, 2019, 11:33 am the myth: lower interest rates result in higher growth and higher rates result in lower growth - mike August 1, 2019, 5:10 pm The reality: growth has stalled, and will soon be a thing of the past, in global sum. So all the old - Rhisiart Gwilym August 1, 2019, 6:56 pm Agree, the myth of the power of interest rates. - John Monro August 1, 2019, 10:11 pm Of course it's sophistry....nm - Keith-264 August 1, 2019, 10:34 pm Re: Of course it's sophistry....nm - John Monro August 2, 2019, 10:36 am Eythenkew!....nm - Keith-264 August 2, 2019, 5:26 pm Sophisticates.. - Gerard August 3, 2019, 12:38 pm   Searching