When cutting interest rates might not help in determining good policy

Whether there is a floor beneath which cuts in interest rate are ineffective depends in part on house prices

There’s a meme around official interest rates since the financial crisis, and it goes like this. Central banks have already cut them to nearly zero (or actually zero) but advanced economies are still languishing. Therefore cutting them further won’t achieve much.

There are a number of problems with it. One is that it’s a nice illustration of the post hoc ergo propter hoc fallacy – “after this therefore because of this”. It ignores the counterfactual. Maybe we would have spent a decade in severe recession had it not been for the interest rate cuts.

But there might also be a grain of