A Core Tenet of How Central Bank Stimulus Supports Growth Doesn't Fit the Data, According to Deutsche Bank

Central banks the world over have reduced interest rates more than 500 times since the collapse of Lehman Brothers in 2008. But a crucial part of their thesis on how lower rates are supposed to help spur economic activity may be off the mark, according to strategists at Deutsche Bank.

Cutting interest rates in response to a deteriorating outlook is thought to work through a variety of channels to help support the economy. Lower rates are supposed to encourage households to borrow and businesses to invest, while ceteris paribus, the softening in the domestic currency that accompanies a reduction in rates also makes the country's goods and services more competitive on the global stage.