Working Paper: NBER ID: w7420
Authors: benjamin m friedman
Abstract: The influence of monetary policy over interest rates, and via interest rates over nonfinancial economic activity, stems from the central bank's role as a monopolist over the supply of bank reserves. Several trends already visible in the financial markets of many countries today threaten to weaken or even undermine the relevance of that monopoly, and with it the efficacy of monetary policy. These developments include the erosion of the demand for bank-issued money, the proliferation of nonbank credit, and aspects of the operation of bank clearing mechanisms. What to make of these threats from a public policy perspective in particular, whether to undertake potentially aggressive regulatory measures in an effort to forestall them depends in large part on one's view of the contribution of monetary policy toward successful economic performance
Keywords: No keywords provided
JEL Codes: e52; e58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Central Bank Actions (E52) | Reserves Held by Banks (G21) |
| Reserves Held by Banks (G21) | Money Supply (E51) |
| Money Supply (E51) | Interest Rates (E43) |
| Interest Rates (E43) | Willingness to Borrow and Spend (G51) |
| Willingness to Borrow and Spend (G51) | Nonfinancial Economic Activity (E29) |