Financial Markets and Monetary Transmission

In an blog post earlier this month, I argued that with a dysfunctional banking system impeding the transmission of monetary policy in India, the central bank must use the financial markets to achieve its goals. A blog post by the Federal Reserve Bank of New York yesterday shows that the markets are better at transmitting monetary policy even in the United States where the banking system is quite healthy. They show that the pass through from Fed rate changes to Money Market Mutual Fund yields is more than 90% (both before and after the global financial crisis) while the pass through to bank interest rates was less than 50% pre crisis and close to zero post crisis.

Posted at 10:02 pm IST on Thu, 21 Nov 2019         permanent link

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