Economics, Econometrics and Finance
4 years ago

Monetary policy monopoly threatened by financial market trends, weakening efficacy.

International Finance
The Future of Monetary Policy: The Central Bank as an Army with Only a Signal Corps?
Benjamin M. Friedman

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Monetary policy's impact on interest rates and the economy comes from the central bank's control of bank reserves. Changes in financial markets could weaken this control, affecting monetary policy's effectiveness. Factors like reduced demand for bank money and increased non-bank credit may challenge the central bank's monopoly on reserves. Decisions on regulating these trends depend on how important monetary policy is for economic success.