The transmission mechanism of monetary policy at the beginning of the third millennium

Abstract

In last decade, three important challenges – the introduction of new strategies for monetary policy, the observed differences in anatomy of financial crisis between developed and emerging economies, and the emergence of the EMU – gave rise to new focus of debate about transmission mechanism of monetary policy. Three stages of transmission have been distinguished more clearly. The emphasis has been given to several transmission channels that had not been in the core of the previous debate. The differences in transmission mechanism of monetary policy across countries have been analyzed, and consequently, more attention has been paid to risks when deriving lessons from one country experience for another economy. An overview of the theoretical foundations, three main stages and channels of transmission mechanism provides background for illustrations of cross-country differences. The specific problems of transmission mechanism of monetary policy in emerging economies are discussed in more detail.Transmission mechanism Monetary policy Emerging economies