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Monetarism: The issues and the outcome

  • Allan Meltzer

The paper surveys some main issues in the monetarist-Keynesian debate of the 1960s and 1970s and the outcome of the debate. The debate was not static; the issues changed. At first Keynesians argued that money was largely irrelevant for output and the price level. By the end of the 1970s, issues such as neutrality, the natural rate, and the effect of inflation on nominal interest rates had been settled. Principal remaining issues were the use of money growth as a target, instrument, or indicator of monetary policy and reliance on rules. The paper sketches some of the progress on rules versus discretion in the past 20 years but focuses mostly on the role of money. Some evidence is presented for the U.S. supporting the monetarist position that control of money is useful in a medium-term or rule-based policy to control inflation as now advocated by several central banks. Copyright International Atlantic Economic Society 1998

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Article provided by International Atlantic Economic Society in its journal Atlantic Economic Journal.

Volume (Year): 26 (1998)
Issue (Month): 1 (March)
Pages: 8-31

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Handle: RePEc:kap:atlecj:v:26:y:1998:i:1:p:8-31
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  1. Franco Modigliani, 1977. "The monetarist controversy; or, should we forsake stabilization policies?," Economic Review, Federal Reserve Bank of San Francisco, issue Spr suppl, pages 27-46.
  2. Leonall C. Andersen & Jerry L. Jordon, 1968. "Monetary and fiscal actions: a test of their relative importance in economic stabilization," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 11-23.
  3. Olivier Blanchard & Lawrence F. Katz, 1996. "What We Know and Do Not Know About the Natural Rate of Unemployment," NBER Working Papers 5822, National Bureau of Economic Research, Inc.
  4. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  5. Laurence Ball & N. Gregory Mankiw, 1994. "A Sticky-Price Manifesto," NBER Working Papers 4677, National Bureau of Economic Research, Inc.
  6. Richard D. Porter & Ruth A. Judson, 1996. "The location of U.S. currency: how much is abroad?," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Oct, pages 883-903.
  7. Benjamin M. Friedman & Kenneth N. Kuttner, 1991. "Another Look at the Evidence on Money-Income Causality," NBER Working Papers 3856, National Bureau of Economic Research, Inc.
  8. Robert G. King & Mark W. Watson, 1994. "The post-war U.S. Phillips curve: a revisionist econometric history," Working Paper Series, Macroeconomic Issues 94-14, Federal Reserve Bank of Chicago.
  9. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
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