transmission mechanism eco (1 Viewer)

[indeed]

How does the 'consumption, savings, investment' channel of the transmission mech differ from the 'cash flow' channel?

(because from my reading, it sounds like cash flow also just influences people's savings and spending)

Thanks!

 

[user18181818]

what is the transmission mechanism?

 

[indeed]

its basically the "process by which monetary policy affects the economy" in other words "effect of interest rates"

There's 6 channels which interest rates affect:
- consumption, savings, investment
- inflation
- exchange rates
- asset prices
- cash flow
- cost of credit

(but our teacher only say we should just know a few e.g. consumption savings investment; exchange rates; inflation)

This website might explain it a bit more (just scroll down to the Channels of MP Transmission part):
The Transmission of Monetary Policy | Explainer | Education | RBA

 

[trenboloneacetate]

How does the 'consumption, savings, investment' channel of the transmission mech differ from the 'cash flow' channel?

(because from my reading, it sounds like cash flow also just influences people's savings and spending)

Thanks!

They are pretty similar but look at it this way, savings and investment is how attractive either saving or investing becomes once interest rates change, while cash flow is how interest rates affect a household's or firm's available cash via for example increasing or decreasing servicing costs on debt, overall influencing their consumption.

 

[indeed]

They are pretty similar but look at it this way, savings and investment is how attractive either saving or investing becomes once interest rates change, while cash flow is how interest rates affect a household's or firm's available cash via for example increasing or decreasing servicing costs on debt, overall influencing their consumption.

Oh ok I see, so cash flow is more about consumption, while savings-investment doesn't incorporate consumption at all

Cheers