The Financial Effects of Monetary Policy on Interest Rates In summary of Michael Darby’s article involving the financial effects of monetary policy on interest rates, three specific effects emerge as the most influential. Darby suggests that an increase in the rate of growth of the money supply leads to a pattern of changes in the interest rate that reflects the interaction of the liquidity, income, and expectations effects which vary over time in relative strength. The liquidity effect involves the immediate impact of monetary on interest rates. The income effect pertains to the growth path rate of price levels. Lastly, the expectations effect deals with expected rates of inflation. These three entities will provide a basis for the analysis involved in this paper. Regression models will then be utilized in order to test the predictions t....

Number Of Pages: 6

Number Of Words: 1392

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