1887

OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

Have Long-term Financial Trends Changed the Transmission of Monetary Policy?

This paper addresses the question of whether and how long-term financial trends may have modified the transmission mechanism from monetary policy decisions to economic activity. The focus is on longterm changes, abstracting from the disruptions created by the 2007-08 financial turmoil which are temporarily affecting the transmission mechanism. The first series of findings is that a number of factors have worked to strengthen the transmission of monetary policy, including more competitive financial markets, higher household indebtedness, greater diversity in the supply of financial products, greater financial integration and more responsive asset pricing mechanisms. However, other factors appear to have simultaneously gone in the direction of weakening transmission of domestic policy, including greater external financial influences, lower exchange-rate pass-through and a broad-based shift towards fixed-rate assets and liabilities. On balance, monetary policy appears to remain a powerful tool for guiding aggregate demand, but a number of changes that have worked to support the strength of transmission have also increased risks to financial stability.

English

Keywords: asset prices, financial innovation, financial development, regulation, transmission, monetary policy, interest rate, financial markets, house prices
JEL: E44: Macroeconomics and Monetary Economics / Money and Interest Rates / Financial Markets and the Macroeconomy; E40: Macroeconomics and Monetary Economics / Money and Interest Rates / Money and Interest Rates: General; E52: Macroeconomics and Monetary Economics / Monetary Policy, Central Banking, and the Supply of Money and Credit / Monetary Policy; E43: Macroeconomics and Monetary Economics / Money and Interest Rates / Interest Rates: Determination, Term Structure, and Effects; E58: Macroeconomics and Monetary Economics / Monetary Policy, Central Banking, and the Supply of Money and Credit / Central Banks and Their Policies; E50: Macroeconomics and Monetary Economics / Monetary Policy, Central Banking, and the Supply of Money and Credit / Monetary Policy, Central Banking, and the Supply of Money and Credit: General
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