It involves channels to which the monetary policy decisions
affect the Economy in general.
They guide Economic agents Expectations of inflation.
They influence price developments.
They affect both medium and long term interest rates.
They impact on Bank's monetary market and interest rates.
It describes how the policy induce changes in the nominal money
stock.Impact real variables such as output and Employment.
Its key Assumption is that central bank liabilities include
both components of monetary base that is currency and bank
Reserves.
According to this mechanism,some friction in the Economy works
to prevent nominal prices from adjusting immediately and
proportionally to at least some changes in monetary base.