Working Paper: NBER ID: w27975
Authors: Sebastian Edwards
Abstract: Milton Friedman’s famous 1953 essay, “The case for flexible exchange rates,” deals entirely with advanced nations. An interesting question is what Friedman thought about exchange rate and monetary regimes in emerging economies. In this paper I investigate how his views on the subject evolved through time. I analyze speeches, articles, and interviews. I examine his archives for correspondence and unpublished manuscripts. I show that for him flexible rates were a second best solution for middle income and poor nations. I also analyze Friedman’s role in Chile’s failed attempt, during the Pinochet regime, at using a fixed exchange rate to stabilize the economy and eliminate inflation.
Keywords: Milton Friedman; exchange rates; developing countries; monetary regimes
JEL Codes: B17; B2; B22; B27; B3; F31; F32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Friedman believed flexible exchange rates (F31) | better economic outcomes (P17) |
| Friedman believed flexible exchange rates were a second-best solution (F31) | unique economic challenges in developing countries (F63) |
| Friedman articulated the limitations of fixed exchange rates (F31) | recognition of unique economic challenges in developing economies (O17) |
| India could benefit from a floating exchange rate (F31) | more efficient allocation of foreign exchange (F31) |
| Friedman recognized the potential for severe economic crises (G01) | Chile's fixed exchange rate strategy (F31) |
| Friedman's concerns about the sustainability of fixed exchange rates (F31) | conditions of high inflation and economic instability (E31) |