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The present study investigates the monetary transmission mechanisms and assesses the monetary policy in Sudan; it focuses essentially on examining whether the channels of the exchange rate or the changes altering the monetary base due to monetization of the deficit and bank lending are the appropriate transmission mechanisms. Based on empirical models the study illustrates the effects of the monetary policy on the real sector. Moreover, it also analyzes the dynamics of inflation in Sudan. This study examined monetary transmission mechanism channels in Sudan using a monthly data covering the period 1998/1-2015/5, in addition to annual data over the period 1970-2014, the results obtained confirmed that it takes about 13 months for changes on money to be reflected in the general price level in a system of equations (namely Bayesian BVAR, ARDL, and VECM). About 67% of the exchange rate adjustments were immediately (spontaneously) reflected in the general price levels indicating a strong exchange rate transmission mechanism. Output growth played a crucial role in reducing inflationary pressures, the results failed to reject the null that money growth does not granger cause inflation or exchange and vice versa ( ) . Moreover, both claims on government and credit (finance) to private sector granger cause inflation. The impulse responses derived from the models clearly visualized the monetary transmission mechanisms, which can be traced as monetization of deficit that led to high growth of claims on government and eventually accelerating monetary expansion, which in turn represented a major cause behind exchange rate depreciation and inflationary pressures. The findings conclude that monetary expansion resulted mainly from fiscal dominance, measured by growth of claims on government (implying reliance on central banks to finance the fiscal deficit), which in turn represented the primary source of monetary expansion. It's evident that the exchange rate pass-through played an essential role in transmission of economic shocks to domestic economy; however, more research is required to identify real and nominal exchange rate misalignment. The paper highlighted the main monetary policy objectives and instruments and described the operational framework and signaled the key challenges and methods of reforming the monetary policy stance. Claims on government represent a major source of money growth which in turn reduced monetary policy effectiveness, as a policy recommendation fiscal and monetary authorities are urged to coordinate policy responses to maintain macroeconomic stability and sustain economic development. Its advised to harmonize fiscal and monetary polici
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