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The challenges of the "new economy" for monetary policy

In: Monetary policy in a changing environment

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  • Gilbert Cette

    (Bank of France)

  • Christian Pfister

    (Bank of France)

Abstract

The advent and spread of information and communication technologies (ICTs) increase potential output growth . It is uncertain to what extent and for how long they do so. We use the term "new economy" (NE) to describe the acceleration in potential output growth and the attendant and partly temporary slowdown in inflation. Assessing the NE is however a complicated and delicate task. The impact of the NE on the conduct of monetary policy may differ depending on the time scale. In a long-run perspective, the central bank could capitalise on the NE to set lower inflation targets. In the short to medium term, central banks should be cautious when identifying changing patterns in potential output growth, as temporary errors in appreciation may have an asymmetrical impact on economic stability: the production instability that could result from central banks mistakenly perceiving the advent of a NE would be greater than that generated by the failure to recognise a genuine rise in potential output growth.

(This abstract was borrowed from another version of this item.)

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This chapter was published in:

  • Bank for International Settlements, 2003. "Monetary policy in a changing environment," BIS Papers, Bank for International Settlements, number 19, June.
    This item is provided by Bank for International Settlements in its series BIS Papers chapters with number 19-09.

    Handle: RePEc:bis:bisbpc:19-09

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    Cited by:
    1. Cette, Gilbert & Mairesse, Jacques & Kocoglu, Yusuf, 2005. "Effets de la diffusion des technologies de l’information sur la croissance potentielle et observée," L'Actualité Economique, Société Canadienne de Science Economique, vol. 81(1), pages 203-230, Mars-Juin.
    2. Gilbert Cette & Christian Pfister, 2004. "Challenges of the “New Economy” for Monetary Policy," International Productivity Monitor, Centre for the Study of Living Standards, vol. 8, pages 27-36, Spring.

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