Working Paper

The monetary transmission mechanism: an empirical framework

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.

Keywords: Monetary policy - United States; Interest rates; Foreign exchange rates;

Status: Published in Conference on Monetary Policy in a Changing Financial Environment ; Journal of Economic Perspectives (Fall 1995, v. 9, no. 4, p11-26)


Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: Working Papers in Applied Economic Theory

Publication Date: 1995

Number: 95-07