Working Paper: NBER ID: w24498
Authors: Roger 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 argument 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.
Keywords: Monetary Policy; Financial Stability; Inflation; Unemployment; Economic Theory
JEL Codes: E3; E4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Friedman's advocacy for monetary rules (E60) | low and stable inflation (E31) |
| Friedman's monetary policy ideas (E65) | economic stability (E63) |
| Friedman's theories (E65) | central banking operations (E58) |
| Friedman's theories (E65) | effective monetary policy (E52) |
| Friedman's assertion of self-stabilization (D50) | mischaracterization of economic dynamics (D59) |
| structural frictions in labor markets (J42) | persistent unemployment (J64) |
| market psychology and structural issues (L16) | employment outcomes (J68) |
| natural rate of unemployment fluctuations (J64) | market conditions and psychological factors (G41) |