The transmission mechanism of monetary policy

Quarterly Bulletin 1994 Q3
Published on 01 September 1994

By Mervyn King, an Executive Director of the Bank and its Chief Economist.

Mervyn King, an Executive Director of the Bank and its Chief Economist, considers the monetary policy transmission mechanism—the various channels by which the discretionary actions of the monetary authorities feed through, ultimately, to the rate of change in the price level.
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. He 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.

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