1995•The Journal of Economic PerspectivesOpen access

The Monetary Transmission Mechanism: An Empirical Framework

John B. Taylor

Abstract

This paper provides an overview of the monetary transmission mechanism describing the impact of changes in monetary policy on real GDP. Changes in financial market prices--including long-term interest rates and exchange rates--are the main vehicle for the transmission of policy. The framework incorporates rational expectations and policy rules. It is empirical and appears to fit the facts well.

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Key concepts: Monetary policy, Economics, Monetary transmission mechanism, Monetary economics, Mechanism (biology), Interest rate, Exchange rate, Macroeconomics