Monetary Policy in the Information Economy

Improvements in information processing technology, and in communications are likely to transform many aspects of economic life, but likely no sector of the economy will be more profoundly affected than the financial sector. Financial markets are rapidly becoming better connected with one another, the costs of trading in them are falling, and market participants now have access to more information more quickly about developments in the markets and in the economy more broadly. As a result, opportunities for arbitrage are exploited and eliminated more rapidly. The financial system can be expected to become more efficient, in the sense that the dispersion of valuations of claims to future payments across different individuals and institutions is minimized. For familiar reasons, this should be generally beneficial for the allocation of resources in the economy.