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Friedman Meets Hayek on Money and Prices in Canada

Author

Listed:
  • Kam Hon Chu

    (Memorial University of Newfoundland)

Abstract

"Though both classical liberals, Friedman adopted the quantity theory of money and used the general price indexes and aggregate data in empirical analysis, whereas Hayek rejected aggregative analyses as potentially misleading and focused on the impact of money on relative prices in his business cycle theory. This study shows theoretically that when the central bank minimizes the monetary shock to maintain stability in the general price level, it also maintains simultaneously relative price stability, thus narrowing the divergence between Friedman and Hayek. This finding is empirically verified by Canada's experience with inflation targeting since 1991."

Suggested Citation

  • Kam Hon Chu, 2016. "Friedman Meets Hayek on Money and Prices in Canada," Review of Economic Analysis, Digital Initiatives at the University of Waterloo Library, vol. 8(1), pages 69-46, June.
    • Handle: RePEc:ren:journl:v:8:y:2016:i:1:p:69-96
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    More about this item

    Keywords

    Milton Friedman; F.A. von Hayek; Inflation Targeting; Price Level Targeting; Relative Price Variability;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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