IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

The changing U.S. financial system : some implications for the monetary transmission mechanism

  • Gordon H. Sellon, Jr.
Registered author(s):

    An important part of monetary policy is the monetary transmission mechanism, the process by which monetary policy actions influence the economy. While the transmission mechanism involves a number of channels, including exchange rates, bank credit, and asset prices, most economists consider interest rates to be the principal avenue by which monetary policy affects economic activity.> In recent decades, significant changes in the structure of financial markets and institutions in the United States may have altered the interest rate channel. Key developments include the deregulation of the financial system, the growth of capital markets as an alternative to bank intermediation, increased competition among intermediaries both domestically and internationally, and greater transparency by the Federal Reserve about monetary policy operations. These changes may have altered both the timing and magnitude of the response of interest rates to monetary policy. Indeed, the failure of long-term interest rates to respond to monetary policy easing during the past year has been cited in the financial press as an indication that monetary policy may now have less influence on interest rates than in the past.> Sellon examines how the changing financial system has affected the interest rate channel of monetary policy. He finds that the response of interest rates to monetary policy, rather than diminishing, has actually increased considerably over time. Indeed, bank lending rates on consumer and business loans and mortgage rates now appear to exhibit a much stronger and faster response to monetary policy actions than in the past. Moreover, institutional changes, such as the increased use of variable-rate loans and the availability of low-cost mortgage refinancing, may have altered the transmission mechanism, potentially broadening the influence of monetary policy on the economy.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.kansascityfed.org/Publicat/econrev/Pdf/1q02SELL.pdf
    Download Restriction: no

    Article provided by Federal Reserve Bank of Kansas City in its journal Economic Review.

    Volume (Year): (2002)
    Issue (Month): Q I ()
    Pages: 5-35

    as
    in new window

    Handle: RePEc:fip:fedker:y:2002:i:qi:p:5-35:n:v.87no.1
    Contact details of provider: Postal: One Memorial Drive, Kansas City, MO 64198
    Phone: (816) 881-2254
    Web page: http://www.kansascityfed.org

    More information through EDIRC

    Order Information: Email:


    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Glenn D. Rudebusch, 1995. "Federal Reserve interest rate targeting, rational expectations, and the term structure," Working Papers in Applied Economic Theory 95-02, Federal Reserve Bank of San Francisco.
    2. Mester, Loretta J. & Saunders, Anthony, 1995. "When does the prime rate change?," Journal of Banking & Finance, Elsevier, vol. 19(5), pages 743-764, August.
    3. Marvin Goodfriend, 1985. "Monetary mystique : secrecy and central banking," Working Paper 85-07, Federal Reserve Bank of Richmond.
    4. Mojon, Benoît, 2000. "Financial structure and the interest rate channel of ECB monetary policy," Working Paper Series 0040, European Central Bank.
    5. Joe Lange & Brian Sack & William Whitesell, 2001. "Anticipations of monetary policy in financial markets," Finance and Economics Discussion Series 2001-24, Board of Governors of the Federal Reserve System (U.S.).
    6. Alfred Broaddus, Jr., 2001. "Transparency in the practice of monetary policy," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 1-9.
    7. Steven Todd, 2001. "The Effects of Securitization on Consumer Mortgage Costs," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 29(1), pages 29-54.
    8. Duca, John V., 1996. "Deposit Deregulation and the Sensitivity of Housing," Journal of Housing Economics, Elsevier, vol. 5(3), pages 207-226, September.
    9. Nabar, Prafulla G & Park, Sang Yong & Saunders, Anthony, 1993. "Prime Rate Changes: Is There an Advantage in Being First?," The Journal of Business, University of Chicago Press, vol. 66(1), pages 69-92, January.
    10. Ausubel, Lawrence M, 1991. "The Failure of Competition in the Credit Card Market," American Economic Review, American Economic Association, vol. 81(1), pages 50-81, March.
    11. Forbes, Shawn M. & Mayne, Lucille S., 1989. "A friction model of the prime," Journal of Banking & Finance, Elsevier, vol. 13(1), pages 127-135, March.
    12. Michael J. Dueker, 2000. "Are prime rate changes asymmetric?," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 33-40.
    13. Guthrie, Graeme & Wright, Julian, 2000. "Open mouth operations," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 489-516, October.
    14. George A. Kahn, 1989. "The changing interest sensitivity of the U.S. economy," Economic Review, Federal Reserve Bank of Kansas City, issue Nov, pages 13-34.
    15. Gordon H. Sellon, Jr., 1994. "Measuring monetary policy," Research Working Paper 94-12, Federal Reserve Bank of Kansas City.
    16. Angeliki Kourelis & Carlo Cottarelli, 1994. "Financial Structure, Bank Lending Rates, and the Transmission Mechanism of Monetary Policy," IMF Working Papers 94/39, International Monetary Fund.
    17. Victor Stango, 2000. "Competition And Pricing In The Credit Card Market," The Review of Economics and Statistics, MIT Press, vol. 82(3), pages 499-508, August.
    18. Carlo Cottarelli & Angeliki Kourelis, 1994. "Financial Structure, Bank Lending Rates, and the Transmission Mechanism of Monetary Policy," IMF Staff Papers, Palgrave Macmillan, vol. 41(4), pages 587-623, December.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:fip:fedker:y:2002:i:qi:p:5-35:n:v.87no.1. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (LDayrit)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.