IDEAS home Printed from https://ideas.repec.org/a/sls/ipmsls/v8y20043.html
   My bibliography  Save this article

Challenges of the “New Economy” for Monetary Policy

Author

Listed:
  • Gilbert Cette

    ()

  • Christian Pfister

    ()

Abstract

While much attention has focused on the factors that brought about the so-called new economy, much less attention has been paid to optimal policy responses following the establishment of the new economy. In the third article, Gilbert Cette and Christian Pfister from the Bank of France provide such an analysis for the case of monetary policy. They state that the term ‘new economy’ embodies both an acceleration in productivity growth and a disinflationary effect. Central banks can respond to the new economy in several ways in attempting to meet their short-term growth objectives and longer-term inflation objectives. In the long term, monetary policy is most effective in achieving its objectives when the inflation target is changed in response to the new economy and when the monetary authority attempts to stabilize both inflation and output. In the short term, however, when uncertainties regarding the existence of the new economy are present, caution is called for in changing the assessment of the potential growth rate and the inflation target.

Suggested Citation

  • 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.
  • Handle: RePEc:sls:ipmsls:v:8:y:2004:3
    as

    Download full text from publisher

    File URL: http://www.csls.ca/ipm/8/cette_pfister-e.pdf
    Download Restriction: no

    File URL: http://www.csls.ca/ipm/8/cette_pfister-f.pdf
    File Function: version en français
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    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 211-227, July.
    2. Nicholas Oulton, 2002. "ICT and Productivity Growth in the United Kingdom," Oxford Review of Economic Policy, Oxford University Press, vol. 18(3), pages 363-379.
    3. Cedric Tille & Nicolas Stoffels & Olga Gorbachev, 2001. "To what extent does productivity drive the dollar?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 7(Aug).
    4. 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.
    5. Laurence Ball & Robert Moffitt, 2001. "Productivity Growth and the Phillips Curve," NBER Working Papers 8421, National Bureau of Economic Research, Inc.
    6. Stephen D. Oliner & Daniel E. Sichel, 2000. "The Resurgence of Growth in the Late 1990s: Is Information Technology the Story?," Journal of Economic Perspectives, American Economic Association, vol. 14(4), pages 3-22, Fall.
    7. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," The Quarterly Journal of Economics, Oxford University Press, vol. 115(1), pages 147-180.
    8. Glenn D. Rudebusch, 2002. "Assessing Nominal Income Rules for Monetary Policy with Model and Data Uncertainty," Economic Journal, Royal Economic Society, vol. 112(479), pages 402-432, April.
    9. Wyplosz, Charles, 2001. "Do We Know How Low Inflation Should Be?," CEPR Discussion Papers 2722, C.E.P.R. Discussion Papers.
    10. Jacquinot, P. & Mihoubi, F., 2000. "Modele a anticipations rationnelles de la conjoncture simulee : MARCOS," Working papers 78, Banque de France.
    11. Mervyn A. King, 1999. "Challenges for monetary policy : new and old," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 11-57.
    12. Nathalie Greenana & Jacques Mairesse, 2000. "Computers And Productivity In France: Some Evidence," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 9(3), pages 275-315.
    13. Laurence Ball & Robert R. Tchaidze, 2002. "The Fed and the New Economy," American Economic Review, American Economic Association, vol. 92(2), pages 108-114, May.
    14. Jacques Mairesse & Gilbert Cette & Yussuf Kocoglu, 2000. "Les technologies de l'information et de la communication en France : diffusion et contribution à la croissance," Économie et Statistique, Programme National Persée, vol. 339(1), pages 117-146.
    15. Robert J. Gordon, 2000. "Does the "New Economy" Measure Up to the Great Inventions of the Past?," Journal of Economic Perspectives, American Economic Association, vol. 14(4), pages 49-74, Fall.
    16. Dale W. Jorgenson & Mun S. Ho & Kevin J. Stiroh, 2006. "Projecting Productivity Growth: Lessons from the US Growth Resurgence," Chapters,in: The New Economy and Beyond, chapter 2 Edward Elgar Publishing.
    17. Benjamin M. Friedman, 2000. "Decoupling at the Margin: The Threat to Monetary Policy from the Electronic Revolution in Banking," NBER Working Papers 7955, National Bureau of Economic Research, Inc.
    18. Laurence Ball & N. Gregory Mankiw, 2002. "The NAIRU in Theory and Practice," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 115-136, Fall.
    19. Gilbert Cette & Jacques Mairesse & Yusuf Kocoglu, 2002. "Croissance économique et diffusion des TIC : le cas de la France sur longue période (1980-2000)," Revue Française d'Économie, Programme National Persée, vol. 16(3), pages 155-192.
    20. N. Gregory Mankiw, 2001. "U. S. Monetary Policy During the 1990s," Harvard Institute of Economic Research Working Papers 1927, Harvard - Institute of Economic Research.
    21. Stephen G. Cecchetti, 2006. "The New Economy and the Challenges for Macroeconomic Policy," Chapters,in: The New Economy and Beyond, chapter 4 Edward Elgar Publishing.
    22. Olivier Blanchard & Lawrence F. Katz, 1997. "What We Know and Do Not Know about the Natural Rate of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 51-72, Winter.
    23. Kevin J. Stiroh, 2001. "What drives productivity growth?," Economic Policy Review, Federal Reserve Bank of New York, issue Mar, pages 37-59.
    24. Margaret M. McConnell & Gabriel Perez-Quiros, 2000. "Output fluctuations in the United States: what has changed since the early 1980s?," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
    25. Charles R. Nelson, 2000. "Output fluctuations in the United States: what has changed since the early 1980s? comments," Proceedings, Federal Reserve Bank of San Francisco.
    26. Dale W. Jorgenson, 2001. "Information Technology and the U.S. Economy," American Economic Review, American Economic Association, vol. 91(1), pages 1-32, March.
    27. Robert J. Gordon, 2002. "Technology and Economic Performance in the American Economy," NBER Working Papers 8771, National Bureau of Economic Research, Inc.
    28. Woodford, Michael, 2000. "Monetary Policy in a World without Money," International Finance, Wiley Blackwell, vol. 3(2), pages 229-260, July.
    29. Crafts, Nicholas, 2002. "The Solow Productivity Paradox in Historical Perspective," CEPR Discussion Papers 3142, C.E.P.R. Discussion Papers.
    30. Cette, Gilbert & Mairesse, Jacques & Kocoglu, Yusuf, 2005. "ICT diffusion and potential output growth," Economics Letters, Elsevier, vol. 87(2), pages 231-234, May.
    31. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
    32. Oliner, Stephen D. & Sichel, Daniel E., 2003. "Information technology and productivity: where are we now and where are we going?," Journal of Policy Modeling, Elsevier, vol. 25(5), pages 477-503, July.
    33. Gilbert Cette & Jacques Mairesse & Yusuf Kocoglu, 2002. "The Diffusion of ICTs and Growth of the French Economy over the Long-term, 1980-2000," International Productivity Monitor, Centre for the Study of Living Standards, vol. 4, pages 27-38, Spring.
    34. Orphanides, Athanasios, 2003. "Monetary policy evaluation with noisy information," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 605-631, April.
    35. Robert E. Litan & Alice M. Rivlin, 2001. "Projecting the Economic Impact of the Internet," American Economic Review, American Economic Association, vol. 91(2), pages 313-317, May.
    36. McCallum, Bennett T., 1999. "Issues in the design of monetary policy rules," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 23, pages 1483-1530 Elsevier.
    37. Christian Pfister & Gilbert Cette, 2002. ""Nouvelle économie" et politique monétaire," Revue Économique, Programme National Persée, vol. 53(3), pages 669-677.
    38. Dale W. Jorgenson & Kevin J. Stiroh, 2000. "Raising the Speed Limit: U.S. Economic Growth in the Information Age," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(1), pages 125-236.
    39. Erik Brynjolfsson & Lorin M. Hitt, 2000. "Beyond Computation: Information Technology, Organizational Transformation and Business Performance," Journal of Economic Perspectives, American Economic Association, vol. 14(4), pages 23-48, Fall.
    40. Christopher J. Gust & Jaime R. Marquez, 2000. "Productivity developments abroad," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Oct, pages 665-681.
    41. Cecchetti, Stephen G, 2000. "Making Monetary Policy: Objectives and Rules," Oxford Review of Economic Policy, Oxford University Press, vol. 16(4), pages 43-59, Winter.
    42. Charles Goodhart, 2000. "Can Central Banking Survive the IT Revolution?," FMG Special Papers sp125, Financial Markets Group.
    43. von Kalckreuth, Ulf & Schröder, Jürgen, 2002. "Monetary Transmission in the New Economy: Service Life of Capital, Transmission Channels and the Speed of Adjustment," Discussion Paper Series 1: Economic Studies 2002,16, Deutsche Bundesbank.
    44. Bruce T. Grimm & Brent R. Moulton & David B. Wasshausen, 2005. "Information-Processing Equipment and Software in the National Accounts," NBER Chapters,in: Measuring Capital in the New Economy, pages 363-402 National Bureau of Economic Research, Inc.
    45. Barbara M. Fraumeni, 2001. "E-Commerce: Measurement and Measurement Issues," American Economic Review, American Economic Association, vol. 91(2), pages 318-322, May.
    46. Friedman, Benjamin M, 2000. "Decoupling at the Margin: The Threat to Monetary Policy from the Electronic Revolution in Banking," International Finance, Wiley Blackwell, vol. 3(2), pages 261-272, July.
    47. Glenn D. Rudebusch, 2002. "Assessing Nominal Income Rules for Monetary Policy with Model and Data Uncertainty," Economic Journal, Royal Economic Society, vol. 112(479), pages 402-432, April.
    48. Dale W. Jorgenson, 2001. "Information Technology and the U. S. Economy," Harvard Institute of Economic Research Working Papers 1911, Harvard - Institute of Economic Research.
    49. Soderstrom, Ulf, 2002. " Monetary Policy with Uncertain Parameters," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(1), pages 125-145.
    50. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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.
    3. Andreas Breitenfellner & Antje Hildebrandt, 2006. "High Employment with Low Productivity? The Service Sector as a Determinant of Economic Development," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 110-135.
    4. Antipa, P. & Cette, G. & Frey, L. & Lecat, R. & Vigna, O., 2008. "Recent trends in productivity: structural acceleration in the euro area and deceleration in the United States?," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 11, pages 33-50, Spring.
    5. Claudio Borio & William English & Andrew Filardo, 2003. "A tale of two perspectives: old or new challenges for monetary policy?," BIS Papers chapters,in: Bank for International Settlements (ed.), Monetary policy in a changing environment, volume 19, pages 1-59 Bank for International Settlements.

    More about this item

    Keywords

    Monetary Policy; New Economy; Inflation; Inflation Targeting; Central Bank; Monetary Authority; Taylor Rule; Total Factor Productivity;

    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sls:ipmsls:v:8:y:2004:3. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CSLS). General contact details of provider: http://edirc.repec.org/data/cslssca.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.