The monetary transmission mechanism: an empirical framework
This paper describes an empirical framework for analyzing the monetary transmission mechanism through which changes in monetary policy affect real GDP and inflation. The framework reflects the work of a large number of empirical researchers who have built econometric models of the impacts of monetary policy on real interest rates and real exchange rates. The framework is international in its scope and emphasizes the prices of financial assets rather than the quantities of these assets. In most cases expectations are assumed to be rational and the prices of goods and services are temporarily rigid. The paper concludes with a comparison of this empirical framework with a theoretical framework proposed by Milton Friedman 25 years ago.
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|Date of creation:||1995|
|Publication status:||Published in Conference on Monetary Policy in a Changing Financial Environment ; Journal of Economic Perspectives (Fall 1995, v. 9, no. 4, p11-26)|
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- Friedman, Milton, 1970.
"A Theoretical Framework for Monetary Analysis,"
Journal of Political Economy,
University of Chicago Press, vol. 78(2), pages 193-238, March-Apr.
- Bennett T. McCallum, 1993.
"Specification and Analysis of a Monetary Policy Rule for Japan,"
NBER Working Papers
4449, National Bureau of Economic Research, Inc.
- Bennett T. McCallum, 1993. "Specification and Analysis of a Monetary Policy Rule for Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 11(2), pages 1-45, December.
- Friedman, Milton, 1972. "Comments on the Critics," Journal of Political Economy, University of Chicago Press, vol. 80(5), pages 906-950, Sept.-Oct.
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