Working Paper: NBER ID: w13546
Authors: Edward Nelson; Anna J. Schwartz
Abstract: Paul Krugman's essay "Who Was Milton Friedman?" seriously mischaracterizes Friedman's economics and his legacy. In this paper we provide a rejoinder to Krugman on these issues. In the course of setting the record straight, we provide a self-contained guide to Milton Friedman's impact on modern monetary economics and on today's central banks. We also refute the conclusions that Krugman draws about monetary policy from the experiences of the United States in the 1930s and of Japan in the 1990s.
Keywords: No keywords provided
JEL Codes: E31; E51; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Friedman's economic theories (E65) | modern monetary policy (E52) |
| Friedman's theories (E65) | how central banks operate today (E58) |
| Friedman's rejection of cost-push inflation (E31) | policies adopted by central banks (E58) |
| Friedman's emphasis on monetary control (E64) | policies adopted by central banks (E58) |
| Krugman's interpretation of liquidity trap (E12) | understanding of monetary policy evolution (E60) |
| Federal Reserve's restrictive monetary policies (E52) | economic downturns (F44) |
| Friedman's monetarist principles (E65) | inflation-targeting frameworks by central banks (E52) |
| assumption of a liquidity trap (E41) | actual motivations of policymakers (E65) |
| policies could have been more expansive (E65) | outdated economic doctrines (B20) |