The Challenges of the "New Economy" for Monetary Policy

Gilbert Cette and Christian Pfister

Working papers from Banque de France

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 time scale. In a long-run 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 a NE would be greater than that generated by the failure to recognise a genuine rise in potential output growth.

Keywords: Monetary policy; Productivity; New economy; Uncertainty; Measurement issues. (search for similar items in EconPapers)
JEL-codes: D8 E3 E4 E5 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2003
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Challenges of the “New Economy” for Monetary Policy (2004)
Chapter: The challenges of the "new economy" for monetary policy (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:100

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