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The Challenges of the "New Economy" for Monetary Policy

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Author Info
Cette, G.
Pfister, C.

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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.

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Publisher Info
Paper provided by Banque de France in its series Documents de Travail with number 100.

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Length: 25 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:bfr:banfra:100

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Related research
Keywords: Monetary policy ; Productivity ; New economy ; Uncertainty ; Measurement issues.;

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Find related papers by JEL classification:
D8 - Microeconomics - - Information, Knowledge, and Uncertainty
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. 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. [Downloadable!]
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