Monetary Transmission Channels Research Articles

Inflation and the real price of equities: Theory with some empirical evidence

This paper examines a channel of monetary transmission through the stock market. Theoretically, the model predicts an unambiguously negative relationship between money and real activity through the stock prices channel. Empirically, the evidence is in favor of a predominantly negative correlation between money and stock prices, mainly in the period prior to the 1980s. However, shocks to money have a transitory effect on stock prices.

BANKING, CORPORATE FINANCE, AND MONETARY POLICY: AN EMPIRICAL PERSPECTIVE

Traditional theories of corporate finance and macroeconomics give no independent role to bank credit in real behavior, implicitly assuming perfect capital markets. However, most recent theoretical work in corporate finance stresses capital market imperfections which limit access to finance for certain borrowers. Banks are seen as means to overcome these difficulties, implying a comparative advantage over securities markets, and that bank lending may have real effects. Empirical results at a micro level tend to support many of these theories, based on asymmetric information and incomplete contracts, albeit often also being consistent with other hypotheses. Equally, some progress had been made relating recent developments in banking and corporate finance to macroeconomic developments (the so-called credit channel of monetary transmission). The central banks are showing a greater interest in credit as an indicator and component of the monetary-policy transmission mechanism, partly in the light of this body of research. Copyright 1994 by Oxford University Press.

The market integration of large and small economies: Australia, the U.S., and Japan

A cross spectral comparison of the major Australian business and inflation cycles with their American and Japanese equivalents indicates a close degree of price integration between Australian and American markets and a strong quantity integration of Australian and Japanese markets. These studies suggest the operation of an international monetary transmission channel linking the Australian and American economies and a foreign trade multiplier channel transmitting Japanese disturbances to the Australian economy. The policy implications of these different forms of market integration are discussed with the emphasis placed on Australian currency exchanges.

MONETARY POLICY AND LIQUIDITY: SIMULATION RESULTS

Recent work finds that the balance-sheet position of households plays an important role in the demand for consumer durables, thus leading to new channels of monetary policy effects on aggregate demand. In this paper, these monetary policy transmission channels are explored with dynamic simulation experiments using a previously estimated consumer durables model and a large scale macro-econometric model. The experiments indicate that these channels are indeed critical to the operation of the macroeconomic system and to the potency of monetary policy.