Push On A String

外汇网2021-06-19 16:16:14 109

When monetary policy cannot entice consumers into spending more money or investing in an economy, even if monetary policy is loosened to to put more money into peoples' hands. This term is often attributed to noted economist John Maynard Keyenes.

If the core demand doesn't exist to induce people to part with their money, it can't be forced through monetary policy. Trying to do so is like trying to "push on a string".

Such a situation occurred during the Great Depssion in the 1930s and in Japan during the late 1990s when interest rates were about 1%. This situation is sometimes referred to as a "liquidity trap" and explains why central bankers do not attempt to lower rates to levels approaching zero. To lower rates to this level would eliminate monetary policy's power to influence economic growth and consumption.

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