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Monetary Policy in the Information Economy

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Michael Woodford

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Abstract

This paper considers two challenges that improvements in private-sector information-processing capabilities may pose for the effectiveness of monetary policy. It first considers the consequences of improved information about central-bank actions, and argues that the management of expectations will become even more important to effective monetary policy. The paper next considers the consequences of the potential erosion of private-sector demand for central-bank money. This should not fundamentally impair the ability of central banks to achieve their stabilization objectives, though it may require a new approach to the implementation of monetary policy. The advantages of a 'channel' system, in which central-bank standing facilities are the main tool used to control overnight interest rates, are discussed.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8674.

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Date of creation: Dec 2001
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Handle: RePEc:nbr:nberwo:8674

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E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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