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Cooper Anderson
Cooper Anderson

Transmission Mechanism



This is the process through which monetary policy decisions affect the economy in general and the price level in particular. The transmission mechanism is characterised by long, variable and uncertain time lags. Thus it is difficult to predict the precise effect of monetary policy actions on the economy and price level.




transmission mechanism



The monetary transmission mechanism is the process by which asset prices and general economic conditions are affected as a result of monetary policy decisions. Such decisions are intended to influence the aggregate demand, interest rates, and amounts of money and credit in order to affect overall economic performance. The traditional monetary transmission mechanism occurs through interest rate channels, which affect interest rates, costs of borrowing, levels of physical investment, and aggregate demand. Additionally, aggregate demand can be affected through friction in the credit markets, known as the credit view. In short, the monetary transmission mechanism can be defined as the link between monetary policy and aggregate demand.


The monetary transmission mechanism describes how policy-induced changes in the nominal money stock or the short-term nominal interest rate impact 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.


The housing market is of central concern to monetary policy makers. To achieve the dual goals of price stability and maximum sustainable employment, monetary policy makers must understand the role that housing plays in the monetary transmission mechanism if they are to set policy instruments appropriately. In this paper, I examine what we know about the role of housing in the monetary transmission mechanism and then explore the implications of this knowledge for the conduct of monetary policy. I begin with a theoretical and empirical review of the main housing-related channels of the transmission mechanism. These channels include the ways interest rates directly influence the user cost of housing capital, expectations of future house-price movements, and housing supply; and indirectly influence the real economy through standard wealth effects from house prices, balance sheet, credit-channel effects on consumer spending, and balance sheet, credit-channel effects on housing demand. I then consider the interaction of financial stability with the monetary transmission mechanism, and discuss the ways in which the housing sector might be a source of financial instability, and whether such instability could affect the ability of a central bank to stabilize the overall macroeconomy. I conclude with a discussion of two key policy issues. First, how can monetary policy makers deal with the uncertainty with regard to housing-related monetary transmission mechanisms? And second, how can monetary policy best respond to fluctuations in asset prices, especially house prices, and to possible asset-price bubbles?


Frederic S. Mishkin, 2007. "Housing and the monetary transmission mechanism," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 359-413. citation courtesy of


The transmission of monetary policy describes howchanges made by the Reserve Bank to its monetarypolicy settings flow through to economic activityand inflation. This process is complex and there is alarge degree of uncertainty about the timing andsize of the impact on the economy. In simple terms,the transmission can be summarised in two stages.


The first stage of transmission is about howchanges to settings for these tools influenceinterest rates in the economy. The cash rate is themarket interest rate for overnight loans betweenfinancial institutions, and it has a strong influenceover other interest rates, such as deposit andlending rates for households and businesses. TheReserve Bank's other monetary policy tools workprimarily by affecting longer-term interest rates inthe economy.


The second stage of transmission is about howchanges to monetary policy influence economicactivity and inflation. To highlight this, we canuse a simple example of how lower interest ratesfor households and businesses affect aggregatedemand and inflation. (Higher interest rates havethe opposite effect on demand and inflation).


Inflation expectations also matter for thetransmission of monetary policy. For example, ifworkers expect inflation to increase, they mightask for larger wage increases to keep up with thechanges in inflation. Higher wage growth wouldthen contribute to higher inflation.


Biofilms occur on a wide range of surfaces (natural or man-made) and EPS is also a major component of diatom films found on underwater man-made surfaces [37]. The removal of pathogens from water onto biofilms that colonize the surfaces of pipes or other structures of water treatment plants has been reported [38]. Investigating the potential for T. gondii to adhere to biofilms is significant not only for understanding infection mechanisms of marine fauna, but also due to numerous reports of waterborne outbreaks of toxoplasmosis in humans worldwide [39]. To date, the adhesion of coccidian parasites' oocysts has not been linked to EPS of biofilms that colonize natural surfaces such as kelp blades.


Two experiments were designed to: (1) provide qualitative data on snail diet and kelp biofilm composition; and (2) test whether T. gondii oocyst surrogates adhere to kelp blade surfaces via EPS on the blades and/or via TEP suspended in the water that subsequently become biofilm on the blades. Together these experiments examine the possible mechanism(s) by which T. gondii oocysts may become associated with kelp surfaces and whether snails can consume organisms entrained within the kelp biofilm: if such associations are found, then a delivery route of the planktonic oocysts to the endangered otter would be identified for the first time. We considered both EPS (the matrix of the biofilm on kelp surfaces) and TEP in the water, as potential agents that could deliver Toxoplasma to snails that graze the kelp surfaces with biofilms. Dragon green microspheres that have been previously validated as surrogate particles for T. gondii oocysts were used because they have surface properties (i.e., size, specific gravity, hydrophobicity, and surface charge) that resemble those of T. gondii oocysts [40]. Due to the biohazardous nature of T. gondii oocysts, employing surrogates in mesocosm experiments provides an alternative approach for evaluating the waterborne transport of this zoonotic pathogen. Previous studies have successfully applied these surrogates to demonstrate waterborne transport of oocysts [11] and their association with macroaggregates [13].


The goal of the present study was to test whether extracellular polymer substances (EPS), which form the matrix of biofilms colonizing the surfaces of M. pyrifera blades, play a role in the transmission of the protozoan parasite T. gondii to benthic feeding turban snails. Marine turban snails have been implicated in the exposure of southern sea otters to T. gondii [5]. As this parasite has been identified as a significant cause of mortality in endangered southern sea otter populations, it is critically important to understand the transmission mechanisms to otters, so that prevention or management strategies can be developed to reduce likelihood of exposure. Here we show that T. gondii surrogates may adhere to the biofilm that colonizes the surfaces of kelp blades, thereby becoming available to turban snails that feed upon organisms associated with this biofilm.


Experiment 2 demonstrated a possible mechanism whereby oocysts of T. gondii come to coat the surfaces of kelp blades that are covered with EPS and colonized by benthic diatoms and other microorganisms (Fig. 9). At the end of the 12 hr experiment, an average of 19% and 31% of the total number of surrogates of T. gondii oocysts were recovered from kelp blades coated with EPS and their natural associated microorganisms in unfiltered and filtered seawater treatments, respectively. These results suggest a novel mechanism by which contaminated runoff entering the coastal ocean can deliver T. gondii oocysts to downstream kelp beds, with some of the oocysts adhering to kelp surfaces covered with EPS.


Additional evidence for a mechanism promoting adhesion of suspended particles to surfaces covered with EPS was provided by our observation that planktonic diatoms were present on surfaces of kelp blades. Planktonic diatoms, likely present in the unfiltered seawater at the start of our experiment, presumably were the source of the diatoms that we observed attached to the kelp surfaces. Thus, our study provides evidence of adhesion of planktonic diatoms and suspended particles such as T. gondii oocysts to surfaces covered with an EPS biofilm.


The official interest rate is the most popular tool through which central banks influence the economy. We are going to analyze the monetary transmission mechanism mainly via the analysis of the official interest rate.


In the context of China's commitment to peak carbon emissions by 2030 and achieve carbon neutrality by 2060, as well as its strategy to build a strong transportation country, it is of foremost importance to study the carbon emission reduction effect of the opening of high-speed rail (HSR). This paper innovatively introduces the frequency of HSR stops as an indicator of HSR operation, and uses a time-varying difference-in-difference (DID) model, a mediating effect model and a spatial DID model to assess the direct and indirect impact, transmission mechanism, and spatial spillover effects of the opening and operation of HSR on carbon emission reduction based on a panel of 279 prefecture-level cities from 2003 to 2017. We found that the opening and operation of HSR significantly reduced urban carbon emissions. The direct transmission mechanism analysis shows that the opening of HSR can reduce carbon emissions by replacing highway passenger traffic. Indirect mechanism analysis shows that the opening of HSR can reduce carbon emissions through technological effect, structural effect and opening effect. The test of spatial spillover effect shows that the opening of HSR can promote carbon emission reduction not only in node cities, but also in neighboring cities. 041b061a72


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