Monetary transmission: what do we know and how can we use it?

The existence of a considerable and varying time lag between the actions by the central bank in adjusting its policy instruments and the effects on the respective target variable is widely acknowledged. As a result, the monetary policy maker needs to take a forward-looking approach in decision-making. A survey is undertaken of the possible channels of monetary transmission, and the problems faced by the imperfect knowledge of the policy maker about the transmission mechanism.