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The transmission mechanism of monetary policy: Microeconomic aspects of macroeconomic issues

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  • Norberto Montani Martins
  • Camila Cabral Pires-Alves
  • André de Melo Modenesi
  • Karla Vanessa Batista da Silva Leite

Abstract

The article analyzes the transmission mechanism of monetary policy in light of microeconomic theory. We address the influence of microeconomic factors on the transmission of monetary policy while taking into account the contributions of conventional price formation and competition theory and heterodox microeconomic theories, including work inspired by the post Keynesians. We found a multiplicity of results regarding changes in price levels and inflation derived from shifts in demand and costs. These results challenge the conventional view, which postulates a single behavior in the circuit from changes in interest rates to demand, prices, and inflation. We conclude that microeconomic and macroeconomic aspects should be integrated to properly explain monetary policy and analyze its effects and transmission mechanism.

Suggested Citation

  • Norberto Montani Martins & Camila Cabral Pires-Alves & André de Melo Modenesi & Karla Vanessa Batista da Silva Leite, 2017. "The transmission mechanism of monetary policy: Microeconomic aspects of macroeconomic issues," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 40(3), pages 300-326, July.
    • Handle: RePEc:mes:postke:v:40:y:2017:i:3:p:300-326
    DOI: 10.1080/01603477.2017.1319249
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