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Transmission Mechanisms

  • Ansgar BelkeEmail author
  • Thorsten Polleit
Chapter

The Effects of Changes in Money Supply

When central banks under take monetary policy actions, they set into motion a series of consequences. However, little is known about when and how changes in the stock of money and short-term interest rates affect real and nominal magnitudes. It is generally assumed that monetary policy effects start with changes in financial market conditions, work through changes in firms’ and private household spending, and eventually exert – via demand and supply – effects on the economy’s price level. The path of consequences a change in the economy’s stock of money triggers in terms of inflation and real magnitudes is known as transmission mechanism.

The instrument that central banks have at their disposal in monetary policy making is the control over the price and the quantity of base money. Base money – consisting of coins and notes in circulation and commercial banks’ deposits held with central bank – represents the ultimate form of money in today’s...

Keywords

Interest Rate Monetary Policy Central Bank House Price Asset Price 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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© Springer-Verlag Berlin Heidelberg 2009

Authors and Affiliations

  1. 1.Chair for MacroeconomicsUniversity Duisburg-Essen Faculty of Economics and Business Administration45117 EssenGermany
  2. 2.Frankfurt School of Finance & Management60314 Frankfurt am MainGermany

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