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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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

id	okr-10986-28003
recordtype	oai_dc
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	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
spellingShingle	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 Wyplosz, Charles What Do We Know about Monetary Policy that Friedman Did Not Know?
relation	Commission on Growth and Development Working Paper;No. 63
description	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.
format	Working Paper
author	Wyplosz, Charles
author_facet	Wyplosz, Charles
author_sort	Wyplosz, Charles
title	What Do We Know about Monetary Policy that Friedman Did Not Know?
title_short	What Do We Know about Monetary Policy that Friedman Did Not Know?
title_full	What Do We Know about Monetary Policy that Friedman Did Not Know?
title_fullStr	What Do We Know about Monetary Policy that Friedman Did Not Know?
title_full_unstemmed	What Do We Know about Monetary Policy that Friedman Did Not Know?
title_sort	what do we know about monetary policy that friedman did not know?
publisher	World Bank, Washington, DC
publishDate	2017
url	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
_version_	1764465556578107392
spelling	okr-10986-280032021-04-23T14:04:45Z What Do We Know about Monetary Policy that Friedman Did Not Know? Wyplosz, Charles 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 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. 2017-08-28T16:13:32Z 2017-08-28T16:13:32Z 2009 Working Paper 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 English en_US Commission on Growth and Development Working Paper;No. 63 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research :: Working Paper Publications & Research

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

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