In the first of two articles on the transmission mechanism of New Zealand monetary policy, we provide a detailed account of the process by which changes in the Reserve Bank’s primary monetary policy instrument, the Official Cash Rate (OCR), eventually come to influence the general level of prices. As such, the article is a guide to how the Bank perceives policy decisions to propagate through the New Zealand economy, and to the relative weight it assigns to the strengths of the various channels that together comprise the transmission mechanism. A second article, to be published in a forthcoming issue of the Bulletin, considers how this mechanism may have changed over time and how this has influenced the implementation of monetary policy in the most recent business cycle.