What are the different methods of transmission of monetary policy?
methods of transmission of monetary policy relate to the way in which the targeted effects of monetary policies are transmitted through the economy to achieve the desired result. Central or reserve banks are the only banks to have the power to create monetary policy because of the fact that they have an exclusive monopoly to supply basic money to all others. Monetary policy usually includes the rate they decide to determine the interest for money they supply to other banks. In this sense, the official interest rate has different levels of effects on market rates that emit their decisions to raise or reduce the official interest rate.
As such, monetary policy transmission methods can be traced along a line or chain of effects from the central bank. For example, the method of transmission of monetary policy is to transfer an increase or reduce the official interest rate to mortgage rates. Assuming a central prohibition of the k is to reduce the inflation rate by causing the rate of demand to be increased by the consumer, it will increase the interestFor a rate to the extent that it is adequate to deal with excessive demand. This increase can only be up to a certain predetermined maximum level, so that the central bank can maintain its influence through interest rates.
When banks get money from a central bank with increased interest rates, they carry fees to both debtors and savings in various forms. One of these methods is to raise interest on debt they owe them, as well as on other types of loans that people try to get from banks such as mortgages and car loans. Interest rates will also be transmitted by factors such as depreciation in the value of shares and bonds due to the increase in the long -term interseset rate.
The methods of transmission of monetary policy also include exchange rates, because the value of exchange rates is influenced by monetary policies. Method of transmission of monetary policy that affects the savings of people in the transmission of monetary policyIky is an increase or decrease in the amount of interest paid for saving deposits. If the interest rate is high, banks often increase the interest rate on savings in an effort to encourage more people to save. In response to the low interest rate, the bank transmits the intention of the central bank to customers by reducing interest, which pays off from savings in an effort to encourage more customers to spend.