What explains the correlations between nominal and real variables in the postwar US data? Are these correlations indicative of significant nominal price rigidity? Or do they simply reflect the particular way that monetary policymakers react to developments in the real economy? To answer these...

The monetary transmission mechanism describes how policy-induced changes in the nominal money stock or the short-term nominal interest rate impact real variables such as aggregate output and employment. Specific channels of monetary transmission operate through the effects that monetary policy...