2012년 5월 16일 수요일

[자료] monetary transmission mechanism

자료: 


출처: Ireland, Peter N. "monetary transmission mechanism." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. 


Abstract: 

The monetary transmission mechanism describes how policy-induced changes in the nominal money stock or the short-term nominal interest rate impact on real variables such as aggregate output and employment. Specific channels of monetary transmission operate through the effects that monetary policy has on [:]
  • interest rates, 
  • exchange rates, 
  • equity and real estate prices, 
  • bank lending, and 
  • firm balance sheets. 
Recent research on the transmission mechanism seeks to understand how these channels work in the context of dynamic, stochastic, general equilibrium models.


Article:

The monetary transmission mechanism describes how policy-induced changes in the nominal money stock or the short-term nominal interest rate impact on real variables such as aggregate output and employment.


Key assumptions:

Central bank liabilities include both components of the monetary base: currency and bank reserves. Hence, the central bank controls the monetary base. Indeed, monetary policy actions typically begin when the central bank changes the monetary base through an open market operation, purchasing other securities – most frequently, government bonds – to increase the monetary base or selling securities to decrease the monetary base.

If these policy-induced movements in the monetary base are to have any impact beyond their immediate effects on the central bank's balance sheet, other agents must lack the ability to offset them exactly by changing the quantity or composition of their own liabilities. Thus, any theory or model of the monetary transmission mechanism must assume that there exist no privately issued securities that substitute perfectly for the components of the monetary base. This assumption holds if, for instance, legal restrictions prevent private agents from issuing liabilities having one or more characteristics of currency and bank reserves.

Both currency and bank reserves are nominally denominated, their quantities measured in terms of the economy's unit of account. Hence, if policy-induced movements in the nominal monetary base are to have real effects, nominal prices must not be able to respond immediately to those movements in a way that leaves the real value of the monetary base unchanged. Thus, any theory or model of the monetary transmission mechanism must also assume that some friction in the economy works to prevent nominal prices from adjusting immediately and proportionally to at least some changes in the monetary base.


The monetary base and the short-term nominal interest rate:

If, as in the US economy today, neither component of the monetary base pays interest or if, more generally, the components of the monetary base pay interest at a rate that is below the market rate on other highly liquid assets such as short-term government bonds, then private agents’ demand for real base money M/P can be described as a decreasing function of the short-term nominal interest rate i: M / P = L(i).

This function L summarizes how, as the nominal interest rate rises, other highly liquid assets become more attractive as short-term stores of value, providing stronger incentives for households and firms to economize on their holdings of currency and banks to economize on their holdings of reserves.

Thus, when the price level P cannot adjust fully in the short run, the central bank's monopolistic control over the nominal quantity of base money M also allows it to influence the short-term nominal interest rate i, with a policy-induced increase in M leading to whatever decline in i is necessary to make private agents willing to hold the additional volume of real base money and, conversely, a policy-induced decrease in M leading to a rise in i.

In the simplest model where changes in M represent the only source of uncertainty, the deterministic relationship that links M and i implies that monetary policy actions can be described equivalently in terms of their effects on either the monetary base or the short-term nominal interest rate.


Poole's(1970) analysis shows, however, that the economy's response to random shocks of other kinds can depend importantly on[:]
  • whether the central bank operates by setting the nominal quantity of base money and then allowing the market to determine the short-term nominal interest rate 
  • or by setting the short-term nominal interest rate and then supplying whatever quantity of nominal base money is demanded at that interest rate. 
More specifically, Poole's analysis reveals that central bank policy insulates output and prices from the effects of large and unpredictable disturbances to the money demand relationship by setting a target for i rather than M. Perhaps reflecting the widespread belief that money demand shocks are large and unpredictable, most central banks around the world today – including the Federal Reserve in the United States – choose to conduct monetary policy with reference to a target for the short-term nominal interest rate as opposed to any measure of the money supply. Hence, in practice, monetary policy actions are almost always described in terms of their impact on a short-term nominal interest rate – such as the federal funds rate in the United States – even though, strictly speaking, those actions still begin with open market operations that change the monetary base.


The channels of monetary transmission

Mishkin (1995) usefully describes the various channels through which monetary policy actions, as summarized by changes in either the nominal money stock or the short-term nominal interest rate, impact on real variables such as aggregate output and employment. (... ...)

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