Milton Friedman's Contributions to Macroeconomics and Their Influence
Milton Friedman's contributions to and influence on macroeconomics are discussed, beginning with his work on the consumption function and the demand for money, not to mention monetary history, which helped to undermine the post World War 2 "Keynesian" consensus in the area. His inter-related analyses of the dynamics of monetary policy's transmission mechanism, the case for a money growth rule, and the expectations augmented Phillips curve are then taken up, followed by a discussion of his influence not only directly on the monetarist policy experiments of the early 1980s, but also less directly on the regimes that underlay the "great moderation" that broke down in the crisis of 2007-2008. Friedman's seminal influence on the development of today's mainstream, stochastic, but essentially Walrasian, macroeconomic theory, rooted in his explicit deployment of econometric theory in the analysis of forward-looking maximising behaviour in 1957, and in his later work on the Phillips curve, is also assessed in the light of his own preference, which he shared with Keynes, for a pragmatic Marshallian approach to economic theorising.
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