ABSTRACT
This introduction presents an overview of the key concepts discussed in the subsequent chapters of this book. The book develops a practical understanding of how monetary policy transmits to the economy. For monetary policymakers worldwide, this is a day-to-day challenge. The book provides an overview of the theory of monetary transmission from the early stages of identifying what monetary policy is reacting to, tracing the effects on market rates, the exchange rate, consumption and investment and on to the effect of monetary policy on inflation and output. It focuses on building formal models of the transmission mechanism. The book discusses the role of the output gap and the Phillips curve in monetary policy models. It examines how monetary policy should be used to disinflate in Colombia. The book describes the importance of credit frictions in Poland, and also focuses on the interaction between fiscal policy and monetary policy in Turkey.
