Wednesday, September 7, 2011

QOD: Appealingly Counter-Intuitive Edition

The story would go that reducing the deficit would lower interest rates, thereby encouraging businesses to invest. (Actually most research shows that investment is not very responsive to interest rates.) [emphasis added]

Dean Baker, Beat The Press blog

Is this true? Do interest rates not have a strong effect on investment. This is appealingly counter-intuitive so I need to be careful here.

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