The mechanism by which changes to monetary policy made by a central bank (i.e., policy- induced changes) are transmitted (i.e., flow through) to the broader economy (e.g., economic activity, growth rate, and inflation). More specifically, monetary transmission describes how policy-induced changes in the nominal money supply or the short-term nominal interest rate impact real economic indicators.
Monetary transmission manifests itself in the impact of monetary policy on interest rates (interest rate channel), exchange rates (exchange rate channel), equity and real estate prices, bank lending (bank lending channel), and businesses’ balance sheets (balance sheet channel).
