Implications and Relevance
Edited by Phillip Arestis, Michelle Baddeley and John S.L. McCombie
Chapter 7: Monetary policy in the new information economy: old problems and new challenges
7. Monetary policy in the information economy: old problems and new challenges Michelle Baddeley and Giuseppe Fontana 1. INTRODUCTION The aim of this chapter is to explore how the emerging information economy is going to affect monetary policy. It is increasingly evident that improvements in information processing and in communications are likely to transform several features of economic life. It is even more evident that banking and ﬁnancial systems are likely to be the economic sectors most affected by those technological improvements (Woodford, 2001). Recently, economists have thus started to speculate on the economic implications of the development of electronic money (for example Federal Reserve Bank of Kansas City, 2001; Baddeley 2004). The USA has been an innovator in the use of electronic money and a picture of the current state of affairs in the USA is thus a good starting point for understanding those incentives. Laurence Meyer, a member of the Board of Governors of the US Federal System, refers to a recent Fed study of retail payment systems showing among other things that the operating costs of the cheque-clearing system range from 0.25 to 1.00 per cent of GDP (Meyer, 2001, p. 6). Similarly, Weiner (1999) outlines some statistics about the evolution of non-cash payment types in the USA. He focuses on the period from 1997 onward. This is due to the fact that inconsistencies in the Bank of International Settlements (BIS) data, in terms of both the deﬁnitions of cheque transactions and the calculation of credit...
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