Quantitative theory of money, monetary policy and real economy

One of the objectives of some central banks is to promote sustainable economic growth through their instruments. Economic models such as AS-AD and IS-LM are based on the assumption that central banks completely controll the money supply. From a theoretical textbook point of view, the amount of money in circulation (or their price) is influenced by open market operations, interest rate changes, minimum reserves, etc. However, the volatile value of a monetary multiplier, liquidity surplus on the interbank market this textbook point of view confronts reality. The aim of this diploma thesis is to answer a question whether there are any "obstacles" that prevent the perfect transmission of monetary policy objectives to the financial markets. We found the answer, thanks to an analysis of economical literature, in the behavior of commercial banks as individual profit maximizing entities as well as their existing regulation. Furthermore, we focus on the determinants of the real product. The condition for long-term economic growth is to support the productive sectors, to invest in innovation and to develop the aggregate productivity of the production factors. The important finding of this work is the principle that long-term support for aggregate supply rather than aggregate demand is needed to achieve long-term economic growth. The central bank has the power to influence AD (in the short-term), but has little influence on AS. This results in a statement that monetary policy can be effective in the short run, but in the long run it is on the supply side.