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The impact of Milton Friedman on modern monetary economics: setting the record straight on Paul Krugman’s 'Who Was Milton Friedman?

  • Edward Nelson
  • Anna J. Schwartz

Paul Krugman’s essay “Who Was Milton Friedman?” seriously mischaracterizes Friedman’s economics and his legacy. In this paper we provide a rejoinder to Krugman on these issues. In the course of setting the record straight, we provide a self-contained guide to Milton Friedman’s impact on modern monetary economics and on today’s central banks. We also refute the conclusions that Krugman draws about monetary policy from the experiences of the United States in the 1930s and of Japan in the 1990s.

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File URL: http://research.stlouisfed.org/wp/2007/2007-048.pdf
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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2007-048.

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Date of creation: 2008
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Publication status: Published in Journal of Monetary Economics, May 2008, 55(4), pp. 835-56
Handle: RePEc:fip:fedlwp:2007-048
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  1. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc.
  2. Friedman, Milton, 1970. "A Theoretical Framework for Monetary Analysis," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 193-238, March-Apr.
  3. Christina D. Romer, 1993. "The Nation in Depression," Journal of Economic Perspectives, American Economic Association, vol. 7(2), pages 19-39, Spring.
  4. Bennett T. McCallum, 1985. "Monetary vs. Fiscal Policy Effects: A Review of the Debate," NBER Working Papers 1556, National Bureau of Economic Research, Inc.
  5. repec:nbr:nberre:0126 is not listed on IDEAS
  6. Friedman, Milton, 1972. "Have Monetary Policies Failed?," American Economic Review, American Economic Association, vol. 62(2), pages 11-18, May.
  7. John B. Taylor, 1998. "Monetary policy and the long boom," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 3-12.
  8. Michael Woodford, 2008. "How Important Is Money in the Conduct of Monetary Policy?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(8), pages 1561-1598, December.
  9. Milton Friedman, 1961. "The Lag in Effect of Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 69, pages 447.
  10. King, Robert G. & Wolman, Alexander L., 2013. "Inflation Targeting in a St. Louis Model of the 21st Century," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 543-574.
  11. Benjamin M. Friedman, 1978. "Crowding Out or Crowding In? Economic Consequences of Financing Government Deficits," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 9(3), pages 593-641.
  12. Friedman, Benjamin M, 1978. "Who Puts the Inflation Premium into Nominal Interest Rates?," Journal of Finance, American Finance Association, vol. 33(3), pages 833-45, June.
  13. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-72, June.
  14. Krugman, Paul, 2000. "Thinking About the Liquidity Trap," Journal of the Japanese and International Economies, Elsevier, vol. 14(4), pages 221-237, December.
  15. Michael D. Bordo & Anna J. Schwartz, 2004. "IS-LM and Monetarism," History of Political Economy, Duke University Press, vol. 36(5), pages 217-239, Supplemen.
  16. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  17. Hiroshi Ugai, 2007. "Effects of the Quantitative Easing Policy: A Survey of Empirical Analyses," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 25(1), pages 1-48, March.
  18. Orphanides, Athanasios, 2004. "Monetary policy in deflation: the liquidity trap in history and practice," The North American Journal of Economics and Finance, Elsevier, vol. 15(1), pages 101-124, March.
  19. Orphanides, Athanasios, 2003. "The quest for prosperity without inflation," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 633-663, April.
  20. Friedman, Milton, 1986. "The Resource Cost of Irredeemable Paper Money," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 642-47, June.
  21. Ben S. Bernanke, 1983. "Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression," NBER Working Papers 1054, National Bureau of Economic Research, Inc.
  22. Frederic S. Mishkin, 2007. "Will monetary policy become more of a science?," Finance and Economics Discussion Series 2007-44, Board of Governors of the Federal Reserve System (U.S.).
  23. Milton Friedman & Anna Jacobson Schwartz, 1970. "Monetary Statistics of the United States: Estimates, Sources, Methods," NBER Books, National Bureau of Economic Research, Inc, number frie70-1, September.
  24. Friedman, Milton, 1972. "Comments on the Critics," Journal of Political Economy, University of Chicago Press, vol. 80(5), pages 906-50, Sept.-Oct.
  25. Darryl R. Francis, 1974. "Inflation, recession - what's a policymaker to do?," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 3-7.
  26. Benjamin M. Friedman, 1978. "Who Puts the Inflation Premium Into Nominal Interests Rates?," NBER Working Papers 0231, National Bureau of Economic Research, Inc.
  27. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76, pages 678.
  28. Timberlake, Richard H, Jr, 1984. "The Central Banking Role of Clearinghouse Associations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(1), pages 1-15, February.
  29. repec:cup:cbooks:9780521783248 is not listed on IDEAS
  30. Taylor, John B., 1981. "On the relation between the variability of inflation and the average inflation rate," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 15(1), pages 57-85, January.
  31. Friedman, Milton, 1971. "A Monetary Theory of Nominal Income," Journal of Political Economy, University of Chicago Press, vol. 79(2), pages 323-37, March-Apr.
  32. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
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