Summary and Concluding Remarks
Central in the conduct of monetary policy is the concept of monetary transmission, i.e. the processes that lie between adjusting instrument variables by the policy maker and the effects on the ultimate target variables. We start this book by stressing the complexity of the monetary transmission mechanism. Economic theory only provides some basic notions, and there exists considerable ambiguity regarding the various transmission channels actually operating in the economy, as well as their ‘signs’. Given this uncertainty, we propose a general framework for preparing a strategy of monetary policy. Characteristic of our proposal is a multi-model approach, where the policy maker instead of using a single model designed to answer all questions uses a range of relatively small models, dealing with specific chains in the transmission mechanism. The choice of models is to be determined by the level of abstraction required by the problem at hand. The objective of this approach is to provide the policy maker with stable, economically interpretable relationships which can be used for policy purposes.
KeywordsInterest Rate Monetary Policy Business Cycle Euro Area Yield Curve
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