The Monetary Transmission Mechanism: Some Answers and Further Questions

[...]The overall conclusion drawn from the research presented isthat monetary policy appears to have less of an impact on realactivity than it once had—but the cause of that change remainsan open issue. The conference papers explored threehypotheses en route to that finding. First, the transmissionmechanism may have changed as a result of the financialinnovations that motivated the conference, such as the growthof securitization, shifts between sources of financing forresidential investment, or changes in the strength of wealtheffects. Second, a change in the conduct of monetary policymay explain what appears to be a change in the effectiveness ofpolicy. Finally, the fundamental structural changes affectingthe economy’s stability (and by implication, monetarytransmission) may be nonfinancial in nature. Also emerging from the discussions was the consensus that a useful area forfuture research is to determine more precisely the role of eachhypothesis in the evolution of the monetary transmissionmechanism.[...]