The Changing U.S. Financial

The Changing U.S. Financial System: Some Implications for the Monetary Transmission Mechanism By Gordon H. Sellon, Jr. An important part of monetary policy is the monetary transmission mechanism, the service by which monetary policy actions influence the economy. While the transmission mechanism involves a number of channels, including exchange rank, stick credit, and asset prices, close to economists consider fire rates to be the principal avenue by which monetary policy affects economic activity. In a simple, stylize view of the interest rate channel, monetary policy first influences bank lending rates and short-term market interest rates. Changes in short-term rates are then transmitted to long-term rates. Finally, economic activity responds as businesses and consumers react to these changes in interest rates. The influence of monetary policy on interest rates depends importantly on the structure of the pecuniary system. In recent decades, significant changes in the structure of financial markets and institutions in the United States may have modify the interest rate channel.

Key developments include the deregulation of the financial system, the growth of capital markets as an alternative to bank intermediation, change magnitude competition among intermediaries both domestically and internationally, and greater transparency by the federal official coyness about monetary policy operations. Gordon H. Sellon, Jr. is a vice president and economist at the Federal Reserve Bank of Kansas City. This article is on the banks website at www.kc.frb.org. 5 6 FEDERAL RESERVE BANK OF KANSAS CITY These changes in the financial system may have altered both the measure and magnitude of the response of interest rates to monetary policy. Indeed, the distress of long-term interest rates to respond to monetary policy substitute during the past year has been cited in the financial press as an interpretation that monetary policy may now have less(prenominal) influence on interest rates... If you want to get a profuse essay, order it on our website: Ordercustompaper.com

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