Monetary transmission mechanism

This article relies largely or entirely on a single source. Relevant discussion may be found on the talk page. Please help improve this article by introducing citations to additional sources. Find sources: "Monetary transmission mechanism" – news · newspapers · books · scholar · JSTOR (April 2016)

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 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, frictions in the credit markets, known as the credit view, can affect aggregate demand. In short, the monetary transmission mechanism can be defined as the link between monetary policy and aggregate demand.