On the impact of trade and financial restrictions on monetary policy transmission

The purpose of the article is to identify the channels through which restrictions on foreign trade and international financial flows affect the effectiveness of various elements of the monetary policy transmission mechanism. The main research method is a comprehensive review of Russian and foreign literature presenting economic-mathematical and econometric models that describe the impact of economic openness or trade and financial frictions on the structural parameters of the economy affecting the effectiveness of monetary policy. The results of the review do not allow for an unambiguous conclusion regarding whether the ability of central banks in such countries to achieve inflation targets with minimal output losses increases or decreases. From the perspective of monetary policy's impact on aggregate demand, the interest rate and credit channels of the transmission mechanism are strengthened, increasing the sensitivity of demand to interest rates, while the exchange rate and balance sheet channels are weakened, requiring a more aggressive central bank response to emerging pro-inflationary shocks (especially external ones). On the aggregate supply side, price stickiness may either increase due to a growing market share of local producers or decrease due to reduced price competition from imports. This has an ambiguous effect on the trade-off between output losses and policy outcomes when conducting disinflationary policy. Conclusions: for monetary policy in Russia, such structural changes may imply greater central bank control over inflation in the event of domestic pro-inflationary pressure, but also some reduction in effectiveness and an increase in the external lag of monetary policy when dealing with the consequences of external shocks.