The Effectiveness and Transmission of Monetary Policy in Context of Theoretical and Empirical Analysis

This study investigate the effectiveness and the transmission mechanism of monetary policy in context of some models and empirical evidence which is developed in last thirty-five years. There are two classes of models that can account for key aspects of the macroeconomic effects of monetary policy. These are models with flexible prices and models with sticky prices. Models with flexible prices consist of "Imperfect Information" and "Limited Participation Models". Imperfect information focuses on the misperceptions of economic agent about aggregate economic conditions and limited participation models on trading restrictions in financial markets. Models with sticky prices focuses on the causes of sticky prices which is assumed the most important component in explaining the effect of monetary policy. The importance of these models can change over time depending on the change in the economic conditions.