Allan Meltzer developed his model of the monetary transmission mechanism in research conducted with Karl Brunner. The Brunner-Meltzer model implies that the Federal Reserve would benefit from drawing brighter lines between monetary and fiscal policy actions, eschewing credit market intervention and focusing, instead, on using its control over the monetary base to stabilize the aggregate price l...

Monetary policies, either actual or perceived, cause changes in monetary interest rates. These changes impact the economy through financial institutions, which react to changes in the monetary rates with changes in their administered rates, on both deposits and lendings. The dynamics of administered bank interest rates in response to changes in money market rates is thus essential to examine th...

raditional monetary theory has largely ignored the role of bank equity. Bank-centered accounts of how monetary policy affects the real economy usually focus on the role of reserves and reserve requirements in determining the volume of demand deposits and, in the case of the bank lending channel, bank loans. As Friedman (1991) observed, “Traditionally, most economists have regarded the fact that...

We analyze the transmission effects of monetary policy in a general equilibrium model of the financial sector, with bank lending and securities markets. Bank lending is constrained by capital adequacy requirements, and asymmetric information adds a cost to outside bank equity capital. In our model, monetary policy does not affect bank lending through changes in bank liquidity; rather, it operat...

I analyze the effect of monetary policy actions on the cross-section of equity returns. Based on earlier theoretical work for the monetary transmission mechanism one can argue that changes in monetary policy should produce differentiated effects on firms and stocks with different characteristics. By using different portfolio sorts the results show that the impact of monthly changes in the Feder...

Recent research provides evidence of important changes in the U.S. economic environment over the last 40 years. This appears to be associated with an alteration of the monetary transmission mechanism. In this paper we investigate the implications for the evolution of monetary policy effectiveness. Using an identiÞed VAR over the preand post-1980 periods we Þrst provide evidence of a reduction i...

We provide empirical evidence of a novel liquidity-based transmission mechanism through which monetary policy influences asset markets, develop a dynamic stochastic monetary equilibrium model of this mechanism, and use it to assess the ability of the quantitative theory to match the evidence.

Oil price shocks are the main source of macroeconomic fluctuations in oil exporting countries. It is believed that appropriate monetary policy can help to stabilize these unwanted variations toward optimal allocations. A stochastic dynamic general equilibrium model featuring the properties of both cost push and wealth effect transmission channels is developed for the Iranian economy. In thi...

Fiji’s central bank, the Reserve Bank of Fiji (RBF) since its inception in 1983, has been pursuing monetary policy with the mandated objectives of economic growth with price stability and an adequate level of exchange reserves. In 1988, as part of financial sector reforms, RBF discontinued the use of direct instruments and switched on to employment of indirect instruments for influencing intere...

The importance of banks for the transmission of monetary policy has been a major topic in monetary economics for some time, and several factors have served to heighten that interest recently. One such factor has been the slower than expected U.S. recovery from the 1990-91 recession, which was accompanied by slow growth in bank lending. This spawned a substantial literature on regulatory-induced...