Challenges for Monetary Policy Transmission in a Changing World

The ESCB Research Network on Challenges for Monetary Policy Transmission in a Changing World (ChaMP) brought together researchers from the ECB, national central banks, in association with the Bank of England and Norges Bank, to assess how profound structural changes, unprecedented shocks and evolving inflation dynamics have altered the transmission of monetary policy. Over the last three years, the network combined evidence from macroeconomic, financial and microeconomic data to better understand the changing channels through which monetary policy affects households, firms and financial markets, producing 204 Working Papers, 17 scientific articles and 5 ECB occasional papers. The research shows that monetary policy transmission remains powerful. ChaMP findings highlight the growing importance of supply chains, non-bank financial institutions, firm-level financial constraints and sectoral heterogeneity in shaping policy outcomes. By challenging traditional representative-agent views and uncovering new sources of amplification and propagation, the network provides policymakers with fresh perspectives on how monetary policy works in an economy undergoing rapid technological, financial and structural change. ChaMP findings also highlight that transmission is state-dependent and can be nonlinear: for instance, when inflation is high and the Philips curve steeper, timely action can stabilise inflation at a lower output cost.