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 m...

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Bibliographic Details
Main Author:	Wyplosz, Charles
Format:	Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2017
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 http://hdl.handle.net/10986/28003

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Summary:	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.

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

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