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World financialsystems have changed and now monetary transmission mechanisms have otherdistributional effects that are not addressed within the traditional moneyview. Firstly, I shall explain the distributional aspects of the traditionalmoney view ...
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World financial systems have changed and now monetary transmission mechanisms have other distributional effects that are not addressed within the traditional money view. Firstly, I shall explain the distributional aspects of the traditional money view and then that of the credit channel, exchange rate channel and other asset price effects. The traditional money view is an interest rate based channel, featured by the standard Keynesian IS-LM framework with exogenous money supply (www.erc.metu.edu.tr/menu/series02/0203.pdf). The basic assumptions that characterize the interest rate channel are: i) sticky-price adjustment to money supply shocks, ii) direct control of the monetary authority on nominal money supply by adjusting reserves, and iii) presence of two assets such as money and bonds where loans are perfect subtitutes for bonds. The IS-LM view of money stresses that changes in the policy are important only insofar as they affect aggregate outcomes. Investment flactuations are of importance since policies only affected the required...
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