Type: book
Abstract: The advent and spread of information and communication technologies (ICTs) increase potential output growth.It is uncertain to what extent and for how long they do so.We use the term "new economy" (NE) to describe the acceleration in potential output growth and the attendant and partly temporary slowdown in inflation.Assessing the NE is, however, a complicated and delicate task.The impact of the NE on the conduct of monetary policy may differ depending on the timescale.In a longrun perspective, the central bank could capitalise on the NE to set lower inflation targets.In the short to medium term, central banks should be cautious when identifying changing patterns in potential output growth, as temporary errors in appreciation may have an asymmetrical impact on economic stability: the production instability that could result from central banks mistakenly perceiving the advent of an NE would be greater than that generated by the failure to recognise a genuine rise in potential output growth.The advent and spread of information and communication technologies (ICTs) is an ongoing technological revolution driven by steady and galloping improvement in the performance of ICTs.A case in point: price indices for computer hardware, and more specifically microprocessors, which are supposed to take account of improvements in the performance of these goods using hedonic techniques, have shed an annual average of roughly 20% (for computer hardware) and 40% (for microprocessors) in some three decades.The impact of this revolution is twofold: it has boosted the potential output growth rate durably and dampened inflation, at least temporarily.The term "new economy" (NE) is used in this paper to depict this twofold effect.Our aim here is to describe the impact of the NE on the conduct of monetary policy.We focus first on the impact of the NE on the variables that are crucial to monetary policy, namely output growth and inflation.We then go on to analyse the consequences for monetary policy, ie the setting by the central bank of a short-term interest rate that serves the dual objective of stabilising inflation and output.
Authors: Gilbert Cette, Christian Pfister, Bank for International Settlements
Institution: Banque de France
Language: English
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1989835798