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Monetary Policy Transmission


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).



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Banking is an integral part of the modern financial system and plays an important role in an economy. It basically involves the so-called intermediation (e.g., ...
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