Transmission Mechanism
2007 Q3
Interpreting movements in broad money 
(638k)
By Stuart Berry, Richard Harrison, Ryland Thomas and Iain de Weymarn
Understanding the role of money in the economy has always been an important issue for policymakers. And the pickup in broad money growth and decline in credit spreads over the past three years together with more recent financial market turbulence has made it a particularly pertinent issue. Monetary data can potentially provide important corroborative or incremental information about the outlook for inflation. But understanding the possible implications of money for the economic outlook requires a detailed assessment of the causes of money growth. Such an assessment must recognise the interactions between money and credit creation and the information contained in both price and quantity data. This article provides an overview of the potential channels through which money growth may affect inflation and the Bank's current empirical approach to analysing developments in monetary aggregates.
2007 Q1
The role of household debt and balance sheets in the monetary transmission mechanism (451k)
By Andrew Benito, Matt Waldron, Garry Young and Fabrizio Zampolli
There is considerable uncertainty about the effect of household debt on the macroeconomy and its role in the monetary transmission mechanism. This article summarises conclusions from recent Bank of England research aimed at shedding light on this issue. It argues that the extent to which levels of household debt affect the outlook for the economy and the way in which the economy responds to unexpected developments, depends on the circumstances of individual borrowers and lenders, as well as wider economic conditions. Recent evidence suggests that there has been little difference in the amount by which the spending of high and low debt households has responded to changes in those households' financial position. This is likely to be because the benign economic environment and favourable lending conditions have made it easier for households to smooth over adverse shocks. Nevertheless, adverse interactions between debt, house prices and consumption could arise in other circumstances. As such, there is a need to keep this situation under review by continued monitoring of household and lender balance sheets.
Winter 2005
Do financial markets react to Bank of England communication? (294k)
By Rachel Reeves and Michael Sawicki
Communication by the Bank of England’s Monetary Policy Committee (MPC) can convey information to market participants about the economic and policy outlook. In an inflation-targeting framework, clear communication by the central bank has an important role in explaining interest rate decisions and in helping to anchor inflation expectations. This article explores how financial markets react to different forms of communication by the MPC. The article finds that markets react to collective forms of communication such as the MPC Minutes and Inflation Report. But reactions to what might be called individual forms of communication - speeches and testimony to parliamentary committees - are more difficult to discern. Compared with a similar study for the United States, the results for the United Kingdom are less pronounced.
Winter 2001
Credit
channel effects in the monetary transmission mechanism (97k)
By Simon Hall
Economic models often assume that the impact on the wider economy
of changes in financial conditions can be summarised by a relatively
limited range of financial variables, such as risk-free interest
rates and long-term government bond rates. But changes in financial
conditions can at times have important effects, which these
variables do not necessarily indicate. This article reviews
so-called 'credit channel' models, which consider how changes
in the financial positions of lenders and borrowers can affect
spending in the economy. These models provide a useful framework
for analysing some potentially important interactions between
the monetary stability and financial stability objectives of
central banks. Subsequent articles in this Bulletin use a specific
'credit channel' model to illustrate the potential for these
interactions in the UK corporate and household sectors.
May 1999
The
transmission mechanism of monetary policy
(56k)
Report prepared by Bank of England staff under the guidance
of the Monetary Policy Committee in response to suggestions
by the Treasury Committee of the House of Commons and the House
of Lords Select Committee on the Monetary Policy Committee of
the Bank of England.
February 1999
Monetary
policy and the labour market
The Employment Policy Institute's fourth annual lecture delivered
by Mervyn King
Discusses link between unemployment and inflation in the transmission
mechanism of monetary policy, how MPC uses empirical information
about the UK labour market when deciding on interest rates.
May 1997
Comparing
the monetary transmission mechanism in France, Germany and the
United Kingdom: some issues and results
(142k)
By Erik Britton and John Whitley
Analyses the importance of commonly cited structural differences
between the economies of the United Kingdom, France and Germany
for the response of output and prices to changes in monetary
policy.
August 1996
The
industrial impact of monetary policy
(81k)
By Joe Ganley and Chris Salmon
This article investigates the disaggregated effects of monetary
policy on the output of 24 sectors of the UK economy. The purpose
of the analysis is to identify the speed and magnitude of firms'
reactions in these sectors to an unexpected monetary tightening;
and to examine whether these responses provide any evidence
on the transmission mechanism of monetary policy.
August 1994
The
transmission mechanism of monetary policy
(39k)
Speech by Mervyn King delivered at Lombard Street Research
Looks at monetary policy transmission mechanism. He suggests
why scope for disagreement about monetary policy exists even
when there is agreement on the qualitative nature of the transmission
mechanism, and outlines the Bank's general view of the role
of money in the economy. Also points out a number of the practical
problems of interpreting the monetary aggregates, drawing from
these considerations some conclusions about the practice of
monetary policy.
November 1993
Bank
behaviour and the monetary transmission mechanism
(1.13mb)
By Spencer Dale and Andrew Haldane
Discusses the role of Banks in the transmission of monetary
policy to price inflation.
