Deflation And Monetary Policy

ABSTRACT The main purpose of this paper is discussing the relation of deflation and transmission of monetary policy. I want to illuminate the characteristic of transmission of monetary policy on the condition of deflation. The approach employed in this article is to use theoretic analysis and positive analysis. The first chapter of this paper expanded analyzes the issue of deflation on the base of definition which author present. It mostly involves the theory of deflation and characteristic and reason of macro-economy appearing deflationary trend in our country. The second of this paper introduce the theory of transmission of monetary policy. Today it is take for granted that monetary policy affects aggregate demand. What is debated is the transmission mechanism by which these effect occurs. Important structural changes in the economy ?result from institutional, regulatory, and technological developments ?may have altered the nature and stability of the channels through which monetary policy affects the level of economic activity. The third chapter of this paper analyzes the characteristic of monetary policy and the obstacle by which monetary policy reaches its ultimate target. And then it presents author抯 policy advice. Finally, author emphasizes that institution-innovation may have more important significance.