You are here
The Monetary Transmission Mechanism: Is it Relevant for Policy?
E31 - Price Level; Inflation; Deflation
E41 - Demand for Money
E58 - Central Banks and Their Policies
E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation
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.