THE EFFECTS OF MONETARY POLICY UPON THE REAL ECONOMY

Anca Maria Gherman
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Anca Maria Gherman: Academy of Economic Studies, Bucharest

Theoretical and Applied Economics, 2007, vol. 11(516)(supplement)(vol2), issue 11(516)(supplement)(vol2), 123-126

Abstract: The monetary policy decisions are transmitted in the economy in different ways, all influencing in the end the evolution of prices and output. The question "If, and if so, how does the monetary policy affect the real economy?" is a perpetual one. The difficulty in answering it is owed to the direction of the causality: the monetary policy and various financial variables affect and are at the same time affected by the changes in the real economy. The monetary policy leads to strong, rapid and generalized effects over variables such as price and output. The effects of the monetary policy on output appear with a certain time delay and their consequences are felt on a relatively short run. After a prolonged period, prices reestablish the market equilibrium, by bringing back output to the initial level. These approaches imply the existence of the neutrality of money on the long run, but not of their neutrality on the short run.

Keywords: real economy; transmission mechanisms; macroeconomic disequilibria; GDP; money neutrality. (search for similar items in EconPapers)
Date: 2007
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