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Some unpleasant monetarist arithmetic

Author

Listed:
  • Thomas J. Sargent
  • Neil Wallace

Abstract

In his presidential address to the American Economic Association (AEA), Milton Friedman (1968) warned not to expect too much from monetary policy. In particular, Friedman argued that monetary policy could not permanently influence the levels of real output, unemployment, or real rates of return on securities. However, Friedman did assert that a monetary authority could exert substantial control over the inflation rate, especially in the long run. The purpose of this paper is to argue that, even in an economy that satisfies monetarist assumptions, if monetary policy is interpreted as open market operations, then Friedman’s list of the things that monetary policy cannot permanently control may have to be expanded to include inflation.
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Suggested Citation

  • Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 5(Fall).
    • Handle: RePEc:fip:fedmqr:y:1981:i:fall:n:v.5no.3
    DOI: 10.21034/qr.531
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    References listed on IDEAS

    as
    1. McCallum, Bennett T., 1978. "On macroeconomic instability from a monetarist policy rule," Economics Letters, Elsevier, vol. 1(2), pages 121-124.
    2. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66(6), pages 467-467.
    3. Sargent, Thomas J & Wallace, Neil, 1973. "The Stability of Models of Money and Growth with Perfect Foresight," Econometrica, Econometric Society, vol. 41(6), pages 1043-1048, November.
    4. Scarth, William M., 1980. "Rational expectations and the instability of bond-financing," Economics Letters, Elsevier, vol. 6(4), pages 321-327.
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