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To clarify a little further, the central banks have some kind of control through the interest rate. The interest rate, at the end, it's not decided by bond mar
by RobertoG 5y ago
To clarify a little further, the central banks have some kind of control through the interest rate.
The interest rate, at the end, it's not decided by bond markets or private banks lending one to another, but by the central bank adding or removing reserves to the system. So, the central bank can decide to make lending more cheaper (as is the case now) or more expensive (like in the 70's in the USA).
- kqr 5y agoThat's the idea, but if I remember correctly there's not a whole lot of evidence suggesting that more borrowing happens when the rate is low, for the reason mentioned above: you don't borrow money for fun when it seems cheap, you borrow money because you need it. Borrowing isn't particularly price sensitive. (It is in the margin in the sense that more doubtful gambles pay off when borrowing is cheaper, but the large part of borrowing happens because of an immediate liquidity demand, not a desire for leverage.)
- RobertoG 5y agoI think that's what they call "pushing on a string" (1). Central banks can make lending/borrowing a worst business (higher interest rate) but they can't force people to borrow. So, monetary policy is very limited when demand falls, then fiscal policy is necessary, but, until recently, fiscal policy was anathema because of ideological reasons. (1) - https://www.investopedia.com/terms/p/push_on_a_string.asp https://www.investopedia.com/terms/p/push_on_a_string.asp