Nearly every beginning to intermediate macroeconomics textbook repeats a similar mantra: central banks decrease interest rates to stimulate an economy, and increase rates to slow it down. Few resources begin to touch upon the complicated channels by which interest rates actually affect an economy, the conditions under which those channels work or don’t work, and the time frames within which they are likely to have an effect.
This site is dedicated to documenting and receiving comments on the question of the effect interest rates have on an economy, and in particular how. As can be seen below, the channels are rather complicated, with the net effect not always clear. Those channels where interest rate effects are consistent with policy are in green, inconsistent is in red, and neutral is in grey. Leave comments below. Additional channels will be added as they are brought to my attention.
This question is separate, but related to perhaps an even more interesting and relevant question: the extent to which central bank policy rates actually affect other rates in an economy. That topic will be explored in more detail in the blog entries.