What Do We Know about Monetary Policy that Friedman Did Not Know?

This paper offers a personal review of the current state of knowledge on monetary policy. In a nutshell, what Friedman knew-have survived, but that modern monetary policy departs in some important ways from older principles? The older wisdom that monetary policy determines inflation in the long run but can have systematic shorter run effects has survived a major challenge. Most of the new ideas stem from the recognition of the crucial role of expectations. In today's world, this observation lies behind the spectacular trend toward ever greater central bank transparency. Then it is more than likely that ideas will change in the wake of the global financial crisis. Early debates challenge the old wisdom that central banks ought to be mainly concerned with price stability. In particular, financial stability has always been part of a central bank's mission, but it has occupied limited space in theoretical and empirical studies.

Bibliographic Details

Main Author:	Wyplosz, Charles
Format:	Working Paper biblioteca
Language:	English en_US
Published:	World Bank, Washington, DC 2009
Subjects:	ACCOUNTABILITY, ASSET PRICE, ASSET PRICES, ASSETS, ASYMMETRIC INFORMATION, AUTONOMY, BAILOUT, BAILOUTS, BANK BAILOUTS, BANK BALANCE SHEETS, BANK CREDIT, BANK OF JAPAN, BANK OPERATIONS, BANK POLICY, BANK SECRECY, BANKING SYSTEM, BANKING SYSTEMS, BORROWER, BUDGET CONSTRAINT, CENTRAL BANK, CENTRAL BANK INDEPENDENCE, CENTRAL BANKING, CENTRAL BANKS, COMMERCIAL BANKS, COMPETITIVENESS, CONSUMERS, COST OF CAPITAL, CREDIBILITY, CREDIT EXPANSION, CREDIT GROWTH, DEBT, DECISION MAKING, DEFICITS, DEMAND FOR MONEY, DEPOSITS, DEVELOPING COUNTRIES, DEVELOPING COUNTRY, DURABLES, ECONOMIC CONDITIONS, ECONOMIC DEVELOPMENT, ECONOMIC DEVELOPMENTS, ECONOMIC HISTORIANS, ECONOMIC SITUATION, ECONOMIC THEORY, ECONOMIC VOLATILITY, EMERGING MARKET, EMERGING MARKET COUNTRIES, ENVIRONMENTAL BENEFITS, EQUILIBRIUM, EQUILIBRIUM VALUES, EQUIPMENT, EUROPEAN CENTRAL BANK, EXCHANGE RATE, EXCHANGE RATES, EXPECTED RETURNS, EXTERNAL COMPETITIVENESS, FEDERAL RESERVE, FEDERAL RESERVE BANK, FINANCIAL CRISIS, FINANCIAL MARKET, FINANCIAL MARKETS, FINANCIAL STABILITY, FISCAL POLICIES, FISCAL POLICY, FORECASTS, FUTURE PRICE, GROWTH RATE, GROWTH RATES, GROWTH THEORY, HOLDING, HOLDINGS, HOUSING, HOUSING PRICES, INCOME, INDEBTEDNESS, INFLATION, INFLATION EXPECTATIONS, INFLATION RATE, INFLATION RATES, INFLATION TARGET, INFLATION TARGETING, INFLATION TARGETS, INFLATION TAX, INFLATIONARY PRESSURE, INFORMATION ASYMMETRIES, INSTRUMENT, INSURANCE, INTERBANK MARKETS, INTEREST RATE, INTERNATIONAL BANK, INTERNATIONAL DEVELOPMENT, INTERNATIONAL ECONOMICS, INTERNATIONAL FINANCIAL INTEGRATION, INVESTMENT SPENDING, JURISDICTION, LENDER, LENDER OF LAST RESORT, LIABILITY, LIQUIDITY, LOAN, LOW INTEREST RATES, MACROECONOMICS, MARGINAL COST, MARGINAL COSTS, MARGINAL PRODUCT, MARKET CONDITIONS, MARKET FAILURES, MARKET PARTICIPANTS, MARKET PRICES, MATURITY, MONETARISTS, MONETARY ECONOMICS, MONETARY POLICIES, MONETARY POLICY, MONEY CREATION, MONEY GROWTH, MONEY MARKET, MONEY MARKETS, MONEY SUPPLY, MONOPOLY, MORAL HAZARD, NATURAL RESOURCES, NOMINAL INTEREST RATE, OPEN MARKET, OPEN MARKET OPERATIONS, OPPORTUNITY COST, OUTPUT, OUTPUT GAP, PHILLIPS CURVE, POLITICAL ECONOMY, PRESENT VALUE, PRICE CHANGES, PRICE LEVELS, PRICE SETTING, PRICE STABILITY, PROFITABILITY, PUBLIC DEBT, PUBLIC FINANCE, PUBLIC POLICY, PUBLIC SECTOR, PURCHASING POWER, RAPID ECONOMIC GROWTH, RATE OF INFLATION, REAL GDP, REAL INTEREST, REAL INTEREST RATE, REAL INTEREST RATES, REGIONAL INTEGRATION, RELATIVE PRICE, RESERVE BANK, RESERVE BANK OF AUSTRALIA, RESERVES, RETURN, RISE IN INFLATION, SEIGNIORAGE, SHORT TERM INTEREST RATE, SHORT TERM INTEREST RATES, SMALL BANKS, SOCIAL VALUE, SOLVENCY, STOCK PRICES, SUBSIDIARY, SYSTEMIC RISKS, TAX, TAX POLICY, TAX RATE, TAX RATES, TAX REVENUES, TAXATION, TRANSPARENCY, TREASURIES, TREASURY, UNEMPLOYMENT, VALUE OF COLLATERAL, WAGES, WEALTH, WEALTH EFFECT, WORLD ECONOMY, YIELD CURVE,
Online Access:	http://documents.worldbank.org/curated/en/773021468337216347/What-do-we-know-about-monetary-policy-that-Friedman-did-not-know https://hdl.handle.net/10986/28003
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