This answer claims that:

the central banks have been lowering and lowering [interest] rates, desperate to kickstart the economy, but it's not been working

What does "kickstart the economy" mean here? What exactly are central banks desperate to achieve?

  • $\begingroup$ The metaphor is about motorcycles where you kick a lever to turn over the engine to get it to start $\endgroup$ – Henry Jan 6 '20 at 19:14
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    $\begingroup$ @Henry I know what kickstart means. What does it mean to kickstart the economy? The economy doesn't have a pedal which turns over the engine. $\endgroup$ – user253751 Jan 6 '20 at 19:15
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    $\begingroup$ It suggests the central banks want the economy to grow under its own power and are using low interest rates to try to start that process, since it makes funding investment and consumption cheaper $\endgroup$ – Henry Jan 6 '20 at 19:18
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    $\begingroup$ It is just one of many commonly used metaphors in economics that have no precise definition. The use of such metaphors is usually a sign that the author isn't really clear in her thinking. (I am not specifically picking on this particular author--such sloppy thinking is common even among economists.) $\endgroup$ – user18 Jan 7 '20 at 2:35

In short, the belief this reflects is that cheap money is spent more freely. Since GDP counts the sum-total of value-added transactions in the economy, in principle this means that monetary policy affecting the velocity of money can in turn affect GDP. Theoretically, this is valid to the extent that debt-servicing costs are a significant friction in the economy.

Thinking of money as blood in the circulatory system of the economy, lowering rates is like taking blood thinners to avoid clots.

Whether it works out that way in practice or not is difficult to ascertain, and in practice there are countervailing forces (lower interest rates discourage household savings, high inequality suggests a high degree of misallocation, etc.) that simple changes to interest rates cannot address.


Additionally, lower (or even negative) interest rates make a country's currency less attractive, so in principle lowering its value in foreign exchange, thus potentially leading to an increase in exports, which in an exports-oriented country could have the effect of stimulating the economy to grow. (Note that this can lead to a currency war, in which other countries do the same, so it's by no means a guaranteed success.)


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