Monetary Transmission Mechanisms

Monetary transmission mechanisms refer to the processes through which changes in a central bank's monetary policy affect the economy. When a central bank alters interest rates, for example, it influences borrowing costs for consumers and businesses. Lower interest rates can encourage spending and investment, stimulating economic activity, while higher rates may slow it down. Additionally, these changes impact currency value and financial markets, further affecting overall economic conditions. Essentially, it's how central bank decisions ripple through the economy, influencing growth, inflation, and employment.