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The monetary transmission mechanism: an empirical framework

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  • John B. Taylor

Abstract

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.

Suggested Citation

  • John B. Taylor, 1995. "The monetary transmission mechanism: an empirical framework," Working Papers in Applied Economic Theory 95-07, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfap:95-07
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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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