The Future of Monetary Policy: The Central Bank as an Army with Only a Signal Corps

30 Pages Posted: 21 May 2000 Last revised: 10 Apr 2001

See all articles by Benjamin M. Friedman

Benjamin M. Friedman

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: November 1999

Abstract

The influence of monetary policy over interest rates, and via interest rates over nonfinancial economic activity, stems from the central bank's role as a monopolist over the supply of bank reserves. Several trends already visible in the financial markets of many countries today threaten to weaken or even undermine the relevance of that monopoly, and with it the efficacy of monetary policy. These developments include the erosion of the demand for bank-issued money, the proliferation of nonbank credit, and aspects of the operation of bank clearing mechanisms. What to make of these threats from a public policy perspective in particular, whether to undertake potentially aggressive regulatory measures in an effort to forestall them depends in large part on one's view of the contribution of monetary policy toward successful economic performance

Suggested Citation

Friedman, Benjamin M., The Future of Monetary Policy: The Central Bank as an Army with Only a Signal Corps (November 1999). NBER Working Paper No. w7420. Available at SSRN: https://ssrn.com/abstract=228080

Benjamin M. Friedman (Contact Author)

Harvard University - Department of Economics ( email )

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