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Impact of Information Technology and Implications for Monetary Policy

Author

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  • Inoue, Tetsuya

    (Bank of Japan)

Abstract

The first half of this paper shows the mechanisms through which innovations in Information Technology (IT) have impacts on our economy. Switching costs from existing technologies and network externalities may play important roles in the propagation of IT on a microeconomic level. In addition to the aggregation effects of such externalities, the costs of reallocating capital and retraining labor will hamper macroeconomic performance. Mismeasurements in economic statistics may prevent us from making optimal decisions based on relative price changes. The second half of this paper discusses the issues for improving efficiency in conducting monetary policy by focusing on the price mechanism. We should be careful whether to accommodate the "supply shocks" or not, considering the possibility of nominal rigidities or fluctuation in the general price level. It is also shown that mismeasurements in the price index may damage the credibility of a central bank, since it will be quite difficult to observe the achievement of monetary policy commitment.

Suggested Citation

  • Inoue, Tetsuya, 1998. "Impact of Information Technology and Implications for Monetary Policy," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 16(2), pages 29-60, December.
    • Handle: RePEc:ime:imemes:v:16:y:1998:i:2:p:29-60
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    File URL: http://www.imes.boj.or.jp/research/papers/english/me16-2-3.pdf
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    Cited by:

    1. Sung-Bae Mun & M. Ishaq Nadiri, 2002. "Information Technology Externalities: Empirical Evidence from 42 U.S. Industries," NBER Working Papers 9272, National Bureau of Economic Research, Inc.
    2. Mun, S-B. & Nadiri, M.I., 2002. "Information Technology Externalities: Empirical Evidence from 42 U.S. Industries," Working Papers 02-03, C.V. Starr Center for Applied Economics, New York University.
    3. Sang-Yong Tom Lee & Xiao Jia Guo, 2004. "Information and Communications Technology (ICT) and Spillover: A Panel Analysis," Econometric Society 2004 Far Eastern Meetings 722, Econometric Society.

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    More about this item

    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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