The objective of this research project was to assess the effects of monetary policy in Malawi by tracing the channels of its transmission mechanism. In particular, the study set out to provide empirical evidence for a measure of the stance of monetary policy, while taking cognisance of several factors that characterise the economy of Malawi: market imperfections, fiscal dominance and vulnerability to external shocks, among others. Within the environment of vector autoregressive (VAR) modelling, this study conducted Granger-causality and block exogeneity tests, as well as innovation accounting analyses, in order to elucidate the dynamic interrelationships among monetary policy, financial variables and prices in Malawi. The study found that there was lack of unequivocal evidence in support of any of the conventional channels of the monetary policy transmission mechanism, and that the exchange rate was the single most important variable in predicting prices. Further work could explore if this finding reflects a fiscal dominance effect, especially by relating how government expenditure of donor funds affects financial variables.