9308385 Bernanke This research improves our understanding of how monetary policy works and how it can best be used. The approach will be primarily empirical and comparative, with the experiences of a variety of countries during both the postwar and interwar periods being considered. Three basic questions about the operation of monetary policy will be addressed: (1) How do we go about deciding whether a given monetary policy is "tight" or "easy"? That is, are there reliable indicators of monetary policy stance? (2) How do changes in monetary policy have their effects on the economy, i.e., what is the monetary transmission mechanism? (3) What is the best general framework or strategy for conducting monetary policy -- rules, discretion, or something else? The largest portion of the research will be on monetary transmission, with a dominant theme being the role of capital market imperfections. In the postwar context, the project uses data from a variety of countries to address whether monetary policy works primarily by affecting the quantity of the transactions medium (the traditional "money view") or the quantity of bank lending (the "lending view"). The project quantifies the relative importance of the two channels and considers some alternative ways in which capital market imperfections affect monetary transmission. In the interwar context, the project uses multi-country data sets in order to assess the relative importance of nominal rigidities such as sticky wages and of deflation-induced financial distress in transmitting monetary shocks. ***
