as i have already mentioned, the literature is ample and monetary transmission has been discussed and analyzed in detail before. therefore, it is not my intention to deliver a comprehensive overview of this strand of research. instead, i will outline some driving forces that could have changed specific transmission channels, such as the exchange - rate, the interest - rate and the credit channel in the euro area. in doing so, i shall provide examples of the dependency of the monetary transmission on structural change and point out some identification problems that arise. 2. 1 exchange rate channel concerning the exchange rate channel, there are theoretical arguments for its strength having either increased or decreased in recent years. on the one hand, the creation of the single currency has led to a weaker exchange rate channel of monetary policy in euro area countries because nominal exchange rate changes within the euro area have simply disappeared. on the other hand, the increase in international trade and integration on a global scale has heightened the relative importance of the exchange rate, which, in turn, has fostered the role of the exchange rate in the transmission mechanism. a priori the net effect is open and can only be determined empirically. however, the evidence is mixed. for example, there is some evidence that the exchange rate channel may have become more powerful in the monetary union. 1 however, there is also some evidence that removing the exchange - rate risk for intra euro area trade combined with a stronger monetary policy commitment to stabilising inflation and output may have led to aggregate economic activity and inflation becoming more muted in their response to monetary policy shocks. 2. 2 interest rate channel theoretical considerations as well as empirical results point mainly to a stronger and faster pass - through from policy rates to other interest rates due to increased competition among different financial market segments and an ongoing consolidation process in the banking system. both results in a closer link between different interest rates and thereby increase the speed at which changes in monetary policy rates are transmitted to other financial variables and to the real economy. moreover, the deepening of financial markets we have witnessed in the period before the financial crisis is likely to have enhanced the role of expectations. this has led to monetary policy impulses spreading more rapidly from the money market to other market segments of the financial system. however, there is also an ongoing debate on whether international financial integration could have eroded the influence of monetary policy on national long - term interest rates. indeed, at a first glance, the high degree of synchronisation between movements in long - term nominal

and macroeconomic stability. i believe that the benefits from this interplay are best realized when the supervisory functions are integrated and placed in one umbrella organization such as the central bank the most logical location, bearing in mind the synergies that i mentioned. in other words, in the jamaican context, my preference is for an integrated and autonomous supervisory authority within the central bank. traditionally, the central bank ’ s main objective is the achievement of monetary and financial stability as a means to enhancing macroeconomic stability, growth and development. financial stability has always therefore been an important aspect of central banking. in pursuit of its twin functions, the central bank closely monitors developments in the financial market, interacts regularly with its primary dealers and other market players and analyzes the risks to the financial system. over the last ten years the central bank ’ s emphasis on financial stability has increased because of the increased potential for systemic risk. the transformation in the structure of financial markets and the continuing increase in volumes and products, have contributed to increasing the potential for risk and fuelled the need for a greater degree of interdependence in the pursuit of macroeconomic and financial stability. we have seen the challenges that recent developments in financial markets have posed for central banks both here and abroad. indeed, these developments point to the dynamic and intricate links between central banks and financial markets. the northern rock case certainly reinforces the importance of these links and points to the need for a more integrated approach to the analysis and management of financial market activities both from a central banking and supervisory point of view. this is especially important in an environment of continuing change and particularly relevant to emerging and vulnerable market economies such as jamaica. there is no doubt that the achievement of a strong and resilient financial system is enhanced by the continuous improvement in the analysis and management of risk. indeed, that is the subject of the basel ii framework. but the achievement of a strong and resilient financial system is also augmented by sound and sustainable monetary and fiscal policies. the linkages are therefore critical. furthermore, and speaking from the perspective of the bank of jamaica, the ability to act effectively in a financial crisis is enhanced by the fact that the supervision of commercial banks resides in the central bank. indeed, the bank ’ s current supervisory function helps the central bank to obtain timely and reliable information regarding conditions in the banking sector and the payments system. but over the years the changing financial landscape has spawned a variety of institutions other than the traditional commercial banks. the bank