Monetary Policy Transmission Channels
The monetary policy transmission channels are the different channels through which the effect of a decision by the Board of Directors on the level of the benchmark interest rate on the economy’s aggregate demand and on the variation of the price level travels.
These events occur due to the relationship between the benchmark interest rate and other macroeconomic variables such as the short-term interest rate (i.e., the overnight interbank rate or overnight IBR, or interbank rate, TIB), the market deposit and placement interest rates, the exchange rate, the price of assets, or the inflation expectations of economic agents.
These transmission mechanisms allow monetary policy decisions to have a lagged effect on savings, investment, and spending decisions, the level of the exchange rate, and price adjustment decisions in the economy, which in turn lead to changes in production and price levels in the economy. It is important to note that these channels can act simultaneously. Some of them are the interest rate channel, the credit channel, the asset price channel, the exchange-rate channel, and the expectations channel.
