The New Monetary Policy
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The New Monetary Policy

Implications and Relevance

Edited by Phillip Arestis, Michelle Baddeley and John S.L. McCombie

Beginning with an assessment of new thinking in macroeconomics and monetary theory, this book suggests that many countries have adopted the New Consensus Monetary Policy since the early 1990s in an attempt to reduce inflation to low levels. It goes on to illustrate that the explicit control of the money supply, which was fashionable in the 1970s and 1980s in the UK, US, Europe and elsewhere, was abandoned in favour of monetary rules that focus on interest rate manipulation by the central bank. The objective of these rules is to achieve specific, or a range of, inflation targets.
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Chapter 7: Monetary policy in the new information economy: old problems and new challenges

Michelle Baddeley and Giuseppe Fontana

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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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