Monetary Rules and Control in Brave New World

Abstract

The regulatory, institutional, and technical environment of banks and competing financial enterprises has changed rapidly in recent years. More changes are on the way. Most analysts focus attention on the micro-economic consequences, how the changes affect the various types of financial institutions and their customers, both depositors and borrowers. This chapter concerns the macroeconomic effects, how the monetary system is altered and how the central bank, the Federal Reserve System in the United States, can and should operate in the new environment. Monetary policy is the government’s principal instrument for controlling the overall course of the economy. Consequently, in this industry much more than in others, these macroeconomic effects are of the greatest importance.