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Monetary policy in the information economy

  • Michael Woodford

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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File URL: http://www.kansascityfed.org/Publicat/sympos/2001/papers/S02wood.pdf
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Article provided by Federal Reserve Bank of Kansas City in its journal Proceedings - Economic Policy Symposium - Jackson Hole.

Volume (Year): (2001)
Issue (Month): ()
Pages: 297-370

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Handle: RePEc:fip:fedkpr:y:2001:p:297-370
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