E51 - Money Supply; Credit; Money MultipliersReturn

The paper deals with a transmission mechanism of monetary policy under the regime of inflation targeting. It focuses on the expectations channel, the credit view and the cost channel. These channels work side by side and may amplify effects of the traditional view of transmission mechanisms of monetary policy, which emphasises adjustments on the demand side.

The aim of this paper is to analyze the structure of the current financial system, including money circulation in it, and define its influence on business cycles. The paper examines causes of disturbances in money circulation which lead to shallow or even deep economic crises. The role of central banks is marginal. The author concludes that proper functioning of the current financial system is subject to constant credit growth. If credit growth is insufficient, the system collapses due to money hoarding and other disorders in money circulation. It causes inability to repay the debts, which results in uncertainty and reduces aggregate demand. The entire study is based on US data.