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Decoupling at the Margin: The Threat to Monetary Policy from the Electronic Revolution in Banking

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  • Benjamin M. Friedman
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    Abstract

    The threat to monetary policy from the electronic revolution in banking is the possibility of a decoupling' of the operations of the central bank from markets in which financial claims are created and transacted in ways that, at some operative margin, affect the decisions of households and firms on such matters as how much to spend (and on what), how much (and what) to produce, and what to pay or charge for ordinary goods and services. The object of this paper is to discuss how this possibility arises and what it implies, to dismiss as unessential to the argument various extreme characterizations that have arisen in the recent debate on this issue (for example, that no one will use money for ordinary economic transactions), and to address the specific arguments on the issue offered by Charles Goodhart, Charles Freedman and Michael Woodford.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7955.

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    Date of creation: Oct 2000
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    Publication status: published as Friedman, Benjamin M. "Decoupling at the Margin: The Threat to Monetary Policy from the Electronic Revolution in Banking." International Finance 3, 2 (July 2000): 261-72.
    Handle: RePEc:nbr:nberwo:7955

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    1. Freedman, Charles, 2000. "Monetary Policy Implementation: Past, Present and Future--Will Electronic Money Lead to the Eventual Demise of Central Banking?," International Finance, Wiley Blackwell, vol. 3(2), pages 211-27, July.
    2. Woodford, Michael, 2000. "Monetary Policy in a World without Money," International Finance, Wiley Blackwell, vol. 3(2), pages 229-60, July.
    3. Charles Goodhart, 2000. "Can Central Banking Survive the IT Revolution?," FMG Special Papers sp125, Financial Markets Group.
    4. Benjamin M. Friedman, 1999. "The Future of Monetary Policy: The Central Bank as an Army With Only a Signal Corps," NBER Working Papers 7420, National Bureau of Economic Research, Inc.
    5. Friedman, Benjamin M, 1999. "The Future of Monetary Policy: The Central Bank as an Army with Only a Signal Corps?," International Finance, Wiley Blackwell, vol. 2(3), pages 321-38, November.
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    Cited by:
    1. Hasan Cömert, 2012. "Decoupling between the Federal Funds Rate and Long-term Interest Rates: Decreasing Effectiveness of Monetary Policy in the U.S," Working Papers wp295, Political Economy Research Institute, University of Massachusetts at Amherst.
    2. José Manuel Gutiérrez, 2008. "A Frictionless Economy With Subotimizing Agents," Vienna Economics Papers 0811, University of Vienna, Department of Economics.
    3. Ann Owen & Christopher Fogelstrom, 2005. "Monetary policy implications of electronic currency: an empirical analysis," Applied Economics Letters, Taylor & Francis Journals, vol. 12(7), pages 419-423.
    4. Marco Arnone & Luca Bandiera, 2004. "Monetary Policy, Monetary Areas, and Financial Development with Electronic Money," IMF Working Papers 04/122, International Monetary Fund.
    5. Jan Marc Berk, 2003. "New Economy, Old Central Banks?," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 32(1), pages 1-35, 02.
    6. Bennett T. McCallum, 2004. "Monetary Policy In Economies With Little Or No Money," Pacific Economic Review, Wiley Blackwell, vol. 9(2), pages 81-92, 06.
    7. Jan Marc Berk, 2002. "Banca centrale e innovazione finanziaria. Una rassegna della letteratura recente," Moneta e Credito, Economia civile, vol. 55(220), pages 345-385.
    8. Daniel L. Thornton, 2012. "Monetary policy: why money matters, and interest rates don’t," Working Papers 2012-020, Federal Reserve Bank of St. Louis.
    9. Thornton, Daniel L., 2014. "Monetary policy: Why money matters (and interest rates don’t)," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 202-213.
    10. Daniel L. Thornton, 2006. "The daily liquidity effect," Working Papers 2006-020, Federal Reserve Bank of St. Louis.
    11. Bank for International Settlements, 2013. "Central bank finances," BIS Papers, Bank for International Settlements, number 71, 8.
    12. Stephen G. Cecchetti, 2002. "The New Economy and the Challenges for Macroeconomic Policy," NBER Working Papers 8935, National Bureau of Economic Research, Inc.
    13. Cette, G. & Pfister, C., 2003. "The Challenges of the "New Economy" for Monetary Policy," Working papers 100, Banque de France.
    14. Philip R. Lane, 2002. "Monetary-Fiscal Interactions in an Uncertain World: Lessons for European Policymakers," Trinity Economics Papers 200213, Trinity College Dublin, Department of Economics.
    15. C. Sardoni, 2006. "Why Central Banks (and Money) Rule the Roost," Economics Working Paper Archive wp_457, Levy Economics Institute.
    16. Maxim Kotsemir & Alexander Abroskin & Dirk Meissner, 2013. "Innovation concepts and typology – an evolutionary discussion," HSE Working papers WP BRP 05/STI/2013, National Research University Higher School of Economics.
    17. Jan Marc Berk, 2002. "Central banking and financial innovation. A survey of the modern literature," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 55(222), pages 263-297.
    18. Helmut Wagner, 2001. "Implications of Globalization for Monetary Policy," IMF Working Papers 01/184, International Monetary Fund.
    19. Jan Marc Berk, 2002. "Central banking and financial innovation. A survey of the modern literature," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 55(222), pages 263-297.

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