And shorter cycles make for a more effective monetary policy. 1  Krugman, P. “Crisis: the price of globalization?” Paper presented at Jackson Hole, Wyoming, 2000. 2  World Economic Outlook, May 2001, Chapter III: “Three Current Policy Issues: Impact of the Global Technology Correction on the Real Economy”, page. 57-66. 3  Brookings Institution (2001): “The Economic Payoff from the Internet”. www.brook.edu/es/research/areas/it/ipibisummary.htm. Blinder, Alan (2000): “The Internet and the New Economy”, Brookings Institution Policy Brief N°60, June. Altig D. y Peter Rupert (1999): “Growth and the Internet: Surfing to Prosperity?”, Federal Reserve Bank of Cleveland Economic Commentary, September. 4  For instance, Robert Gordon (Does the “New Economy” Measure Up to the Great Inventions of the Past? Journal of Economic Perspectives, Fall 2000) mentioned “the new economy has meant little to the 88 percent of the economy outside of durable manufacturing; in part of the economy, trend growth in multifactor productivity has actually decelerated, despite a massive investment boom in computers and related equipment”. Page 72. BIS Review 53/2001  1  Optimal inventory management in an increasingly open international economy will not only imply shorter, but also, most probably, more synchronic cycles. A by-product of this development is an expansion of the geographical limits of optimum currency areas à la Mundell. 3. Terms of trade shocks and emerging economies  The synchronization of the cycle increases volatility in commodity markets, an important source of international transmission of the cycle to a good number of emerging economies.

However other, well-known transmission channels from portfolio adjustments to the real economy are wealth effects on consumption and Tobin´s q on investment. Evidence in industrial countries suggests that the semielasticity of consumption to a permanent 2 increase in stock prices is of the order to 0.04 after two years . In emerging economies, where only a limited number of households own stocks in asset markets, the effect of changes in stock prices on consumption is substantially lower than in the developed world. In addition, as asset prices become more volatile it becomes more difficult to differentiate between permanent and transitory components. There is another channel through which the new economy may affect real activity levels, and that is 3 productivity . Several academic studies have examined the factors behind the spur in U.S. productivity during the last decade, assigning particular attention to the new economy and the effects of the 4 computer revolution. This issue is still under debate . The fact is that the internet revolution has increased the speed of information transmission, making information cheaper and more widely available. This acceleration is quickly changing the business environment, leading to significant savings in the business-to-business supply chain. One of the implications of this increase in the availability of information is a great improvement in inventory management. The optimal level of inventories is becoming smaller, so that the real economy reacts faster to demand and/or supply shocks, reducing both the length and the width of the cycle.