Working Paper: CEPR ID: DP12825
Authors: Roger E. A. Farmer
Abstract: I review the contribution and influence of Milton Friedman’s 1968 presidential address to the American Economic Association. I argue that Friedman’s influence on the practice of central banking was profound and that his arguments in favour of monetary rules was responsible for thirty years of low and stable inflation in the period from 1979 through 2009. I present a critique of Friedman’s position that market-economies are self-stabilizing and I describe an alternative reconciliation of Keynesian economics with Walrasian general equilibrium theory from that which is widely accepted today by most neo-classical economists. My interpretation implies that government should intervene actively in financial markets to stabilize economic activity.
Keywords: Keynesian economics; Monetarism; Natural rate of unemployment
JEL Codes: E3; E4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Milton Friedman's arguments in favor of monetary rules (E49) | low and stable inflation from 1979 to 2009 (E31) |
| government intervention is necessary to mitigate economic fluctuations (E32) | economic stability (E63) |
| government actions (H59) | economic stability (E63) |
| monetary policy frameworks (E63) | inflation stability (E31) |
| Friedman's theories (E65) | misunderstanding of dynamics between monetary supply, interest rates, and inflation (E49) |