An Empirical Assessment of the Effectiveness of the Transmission Mechanism Theory of Monetary Policy (TMTM) on Real Economies

Monetary policy is undeniably an effective tool in global financial systems; that notwithstanding it sometimes comes with unanticipated consequences. For there to be a successful monetary policy arrangement in place, there is the need for policymakers and or regulators to have a precise assessment of the timing and the result of such policies within the economy. The transmission mechanism theory as a tool that defines how policy variations in nominal money stock or short-term interest rate affect real economic variables not limited to employment as well as aggregate output. The theory of transmission mechanism comes through several channels including the interest rate, exchange rate, asset price, credit as well as the expectation channels. This article assesses and analyzes the various channels in the theory.