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The Monetarist-Keynesian Debate and the Phillips Curve: Lessons from the Great Inflation

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  • Robert L. Hetzel

Abstract

Since the early 1950s, debate between economists of the Cowles Commission and Milton Friedman macroeconomics has developed along two parallel but integrally interconnected tracks. The Cowles Commission track involves development of a model of the economy organized around a system of stochastic difference equations with research efforts directed toward providing microeconomic foundations for the individual equations. The Friedman track involves using changes over time in the systematic character of monetary policy and departures from a given policy as surrogates for controlled experiments in an attempt to distinguish between alternative models. The Monetarist-Keynesian debate of the 1960s and 1970s illustrates this ongoing dialectic within macroeconomics.

Suggested Citation

  • Robert L. Hetzel, 2013. "The Monetarist-Keynesian Debate and the Phillips Curve: Lessons from the Great Inflation," Economic Quarterly, Federal Reserve Bank of Richmond, issue 2Q, pages 83-116.
    • Handle: RePEc:fip:fedreq:00009
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    References listed on IDEAS

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    1. Christina D. Romer & David H. Romer, 1989. "Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 121-184, National Bureau of Economic Research, Inc.
    2. Robert L. Hetzel, 1985. "The rules verses discretion debate over monetary policy in the 1920s," Economic Review, Federal Reserve Bank of Richmond, vol. 71(Nov), pages 3-14.
    3. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2009. "New Keynesian Models: Not Yet Useful for Policy Analysis," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 242-266, January.
    4. A. W. Phillips, 1958. "The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861–1957," Economica, London School of Economics and Political Science, vol. 25(100), pages 283-299, November.
    5. Hetzel,Robert L., 2012. "The Great Recession," Cambridge Books, Cambridge University Press, number 9781107011885, July.
    6. Christopher A. Sims & Tao Zha, 2006. "Were There Regime Switches in U.S. Monetary Policy?," American Economic Review, American Economic Association, vol. 96(1), pages 54-81, March.
    7. Capie,Forrest, 2010. "The Bank of England," Cambridge Books, Cambridge University Press, number 9780521192828, July.
    8. Hetzel,Robert L., 2008. "The Monetary Policy of the Federal Reserve," Cambridge Books, Cambridge University Press, number 9780521881326, July.
    9. Robert L. Hetzel, 1996. "Sterilized foreign exchange intervention: the Fed debate in the 1960's," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 21-46.
    10. James M. Nason & Gregor W. Smith, 2008. "The New Keynesian Phillips curve : lessons from single-equation econometric estimation," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 94(Fall), pages 361-395.
    11. Friedman, Milton & Schwartz, Anna J, 1991. "Alternative Approaches to Analyzing Economic Data," American Economic Review, American Economic Association, vol. 81(1), pages 39-49, March.
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    Cited by:

    1. Binder, Carola Conces, 2016. "Estimation of historical inflation expectations," Explorations in Economic History, Elsevier, vol. 61(C), pages 1-31.
    2. Peter N. Ireland, 2019. "Monetary Policy Implementation: Making Better and More Consistent Use of the Federal Reserve's Balance Sheet," Journal of Applied Corporate Finance, Morgan Stanley, vol. 31(4), pages 68-76, December.

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