The Monetary Transmission Mechanism: Is it Relevant for Policy?

Bernardino Manuel Adão · Isabel Horta Correia · Pedro Teles

13 citations0/0 files storedJournal of the European Economic Association

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Monetary Policy and Economic Impact Economic Theory and Policy Economic theories and models

Abstract

Abstract We study environments with sticky prices, wages, or portfolios where it is feasible and optimal to use monetary policy to replicate the allocation under full flexibility. In these environments the optimal policy does not depend on the scope of the frictions. In this sense, the strength of the monetary transmission mechanism is irrelevant for the conduct of monetary policy. So, asymmetries in the strength of the transmission mechanisms do not impose a cost on a common policy.

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1992Liquidity, loanable funds, and real activity 1997Sticky price and limited participation models of money: A comparison 2003Gaps and Triangles

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