Monetary Policy Transmission Mechanisms

Abstract

Policy-makers must be able to accurately assess the effects of their policies on the economy, especially in the period of economic instability. To do this, they need to study the mechanisms through which monetary policy affect the economic activity. The article examined theoretical approaches and ways (or channels), in which monetary policy effect aggregate demand and other economic indicators. The article showed that efficiency of the transmission mechanism and its channels are determined by the state-of-the-art of the financial system. In Russia the following channels play a significant role: interest-rate, exchange rate, bank lending channel and inflation expectation channels.