 we have already completed aggregate demand aggregate supply model with different assumptions and we did policy analysis in aggregate demand and aggregate supply model or framework and with different assumptions we saw in detail in this model that policy can be effective or ineffective stabilisation policy is effective or not whereas on the other hand we saw anti-inflationary policy that is effective or not now we are going towards a very important topic which discusses the effectiveness of aggregate demand aggregate supply in more detail in the policy and its channels the point is that when you are studying aggregate demand aggregate supply framework in that we take some idea that why this effect is happening as we say aggregate demand curve has shifted to the right side or aggregate supply curve has shifted to the left side or any curve has shifted to any side so we are seeing its reason but in that when we talk about aggregate demand aggregate supply type model we are seeing on an aggregate level that because of any channel policy is effective or policy does not work so it is ineffective now the topic we are going towards is a further topic from that because we are talking about transmission mechanism so what is transmission mechanism and what is this topic now we will discuss it and then we will continue on this topic first of all the policy makers they want to know which type of policies they adopt so the output fluctuation can be less or the inflation rate fluctuation can be less we have seen in the previous models that you want to control the inflation with anti-inflationary policy you want to reduce the fluctuation of the output with the policy of output stabilization this means that the policy makers need to know that if they want to stabilize the output or reduce the inflation and keep it at a specific level or range then what type of policies they should adopt what policies should be implemented to reduce fluctuation in the output and inflation rate this means that the policy makers should know exactly how much effect the policy decision will have in which direction and in how much time the effect will be for example inflation should be controlled and monetary policy increases the interest rate and the interest rate increases from 100 basis point i.e. 1% to 1% point so they should know how much effect the policy decision will have on the inflation how much the output will be reduced how much the inflation rate will increase and how much the effect will be in time now all these questions are our topic questions which we call as transmission mechanism of monetary policy now monetary policy transmission mechanism now we define it policy transmission mechanism means that the monetary policy affects the output this was a question now the next question is which channel it affects did you understand i.e. if monetary policy affects aggregate demand and the output or inflation affects the aggregate demand from which channel it affects is there any other bridging between these i.e. there is no such that the interest rate increases and the aggregate demand decreases there must be some other variables that change and the aggregate demand changes so in the transmission mechanism we want to focus on those channels for example if there is change in interest rate and the monetary policy instrument and definitely it will affect aggregate demand but there are some bridging variables i.e. those variables that change because of the interest rate and the aggregate demand changes so we discuss between those variables in the topic of transmission mechanism aggregate demand, aggregate supply model there is no such topic now if you remember when we were talking about aggregate demand, aggregate supply model in that we always bring the interest rate in the middle i.e. the channels we are talking about in the middle there is a thing called traditional interest rate channel we will read this in detail later but till now it is just that the previous model we always talk about the interest rate channel which we will read in detail in the next lecture but apart from the interest rate you know that the interest rate you can call it price number one you know that the interest rate and the bond prices are inversely related we read this earlier and in some lectures we will read in more detail that the interest rate is an inverse relationship i.e. if you look at the interest rate then effectively or indirectly you are looking at the bond prices i.e. if the bond prices are in the middle then the interest rate is also a price or similarly you can also say that money is also an asset then the interest rate cannot be earned because there is no interest on money this means that money is an opportunity cost and the price is determined by the cost so you can say that on the other hand if you borrow money then what will you pay for the price of the bank's interest rate this means the interest rate is the price of the money so this means that the interest rate is the price of an asset so similarly the price of an asset because in the traditional model or in the demand aggregate supply model we always talk about the interest rate or we do not bring the interest rate explicitly in the demand supply model in your mind that there was an inflation rate on the axis and on the other side if there was an inflation rate then where is the interest rate the interest rate is the bridging variable i have already said that the transmission mechanism means that identify bridging variables i.e. if there is a change then what is the reason what is the variable then the interest rate is somewhere in between which we will clear in more detail in the next lecture we identify the channels and one of them is the traditional interest rate channel which is an asset price but in the world or in the financial markets or in the real economy there is no asset price so we will also see the other asset price channel similarly the third transmission channel has a major field i.e. transmission channels there are 3 types let us clear this first because in the next lecture we will discuss transmission channels so transmission channels there will be 3 types an interest rate channel another asset price channel and the third credit channel or credit view because there are 3 types of channels the first interest rate channel we have already had but we will discuss in detail in the next lecture but I will further tell the other price channel that there will be 3 types of channels which we will discuss in the future an exchange rate channel a Tobin's Q theory and a wealth effect or wealth channel this means we will read all these channels in which other asset price channel and then the credit view this is the credit channel in that we will read all types of channels in which there is a bank lending channel in which there is a balance sheet channel in which there is a cash flow channel unanticipated price level channel and after that household liquidity effect these are all the channels in the credit channel so in this lecture I gave you just an overview but what happens in that bridging variables bridging variables I will clear again where the policy changed where the final aggregate demand changed how it changed there must have been some variables in the middle because of which the aggregate demand changed I am calling the bridging variables for those variables if we look at the effect of the policy then this transmission channel will be affected CD will be affected CD ultimate variable if for example this is the transmission channel I have cleared this how many types of transmission channels are there I have told that and then in the sub channels I have shown you their list that all these sub channels our transmission channel will become about 10 types almost so we will read all these in the next lecture in detail thank you