Fifteen years after the Global Financial Crisis: Recessions and Business Cycles in the History of Economic Thought

Famous because of inflation but designed to prevent deflation? The rationale for Milton Friedman’s monetary policy rule from a long-term perspective

Rivot Sylvie, Université de Haute-Alsace

Friedman is usually depicted as ‘the’ economist of the 70s, the monetary theorist whose influence inside but also outside the academia should be understood in light of the ‘Great Inflation’ of the time. The historical context of Friedman’s growing success being recognised, the paper argues that Friedman’s theoretical findings and policy proposals must be understood with regard to his empirical findings about the long history of the U.S.. His understanding of the Great Depression and the lessons he drew from this dramatic episode too should be replaced in this long term perspective. We first restate Friedman’s empirical findings about deflationary and inflationary episodes in a long-term perspective. We then shift the attention towards the restatement of the Quantity Theory of Money offered by Friedman, with a particular focus on the stability of the demand for money function in the long-run and the adjustment-process ensuing an alteration in money supply. The theoretical rationales of Friedman’s ‘k per cent’ monetary rule are then reframed in this dual empirical and theoretical perspective.

Area: Eshet Conference

Keywords: Deflation, inflation, inflationary expectations, reflation, stabilization

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