ABSTRACT
The tools mentioned in the last chapter are used to impact economic performance in a positive direction. Figure 8.1 provides the traditional mechanism by which monetary policy works-what is known as the transmissions mechanism. It also depicts the enhanced set of tools and goals included in China’s monetary policy (note that enhancements are shaded). Clearly, the transmission mechanism in China is even more complex than the traditional one since it includes multiple tools and goals. In this chapter, we will explain why. The transmissions mechanism represents a chain of actions and outcomes, starting with the central bank trying to either stimulate or slow the economy using policy tools.
