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The Transmission Mechanism of Monetary Policy

Posted by
March 10, 2010
in Blog

“Economists do not agree about how monetary policy affects the economy. Different observers
weigh in different ways the various specific channels through which monetary policy works. Views diverge even about the monetary transmission process in individual industrialised nations, the subject of decades of theoretical and empirical research; the process in developing countries is still more uncertain.

Yet an understanding of the transmission process is essential to the appropriate design and implementation of monetary policy. Because changes in the structure of the economy – including changes in balance-sheet positions, in financial sector technology and institutions, or in expectations concerning future policy – tend to alter the economic effects of a given monetary policy measure, central banks need to be alert to the impact of structural change. They need to be able to continuously reinterpret the channels of transmission of monetary policy.” Read more.

Policy Papers No. 3 – The Transmission Mechanism of Monetary Policy in Emerging Markets
Bank for International Settlements
January 1998