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The emergence of a truly global market economy and the associated changes in monetary policy regimes worldwide have sharpened the debate about how monetary policy affects the economy. When the Deputy Governors met at the BIS to discuss this topic a decade ago, several economies were either recovering from a crisis or in the midst of one. Inflation rates were high and volatile, and fixed or semi-fixed exchange rates dominated monetary policy regimes in a number of countries. In addition, the domestic economies and financial systems of several countries were relatively closed to the outside world. Financial markets were comparatively underdeveloped. Hence transmission channels in emerging economies were different from those in industrial countries. Much uncertainty surrounded the impact of monetary policy on prices and output and the channels through which they occurred. The survey of monetary policy transmission by Kamin et al (1998) grew out of this meeting.

Substantial changes over the past decade have doubtless altered transmission channels. Most, if not all, countries now have an independent monetary policy regime, with strong emphasis on inflation control. The financial markets in many countries are much more developed; the structure of the economy has undergone significant changes, and there has been a steady increase in trade and financial openness of emerging market economies. What do these developments mean for the transmission mechanisms of monetary policy? Have they reduced the degree of uncertainty concerning the impact of monetary policy? How have they influenced the response of the …