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The role of financial policy

Author

Listed:
  • Roger E.A. Farmer

    (University of Warwick, Coventry, National Institute of Economic and Social Research (NIESR), London, UK and Emeritus Professor, University of California, Los Angeles, USA)

Abstract

I review the contribution and influence of Milton Friedman's 1968 presidential address to the American Economic Association. I argue that Friedman's influence on the practice of central banking was profound and that his arguments in favour of monetary rules were responsible for 30 years of low and stable inflation in the period from 1979 through 2009. I present a critique of Friedman's position that market economies are self-stabilizing and I describe an alternative reconciliation of Keynesian economics with Walrasian general equilibrium theory from that which is widely accepted today by most neoclassical economists. My interpretation implies that government should intervene actively in financial markets to stabilize economic activity.

Suggested Citation

  • Roger E.A. Farmer, 2018. "The role of financial policy," Review of Keynesian Economics, Edward Elgar Publishing, vol. 6(4), pages 446-460, October.
    • Handle: RePEc:elg:rokejn:v:6:y:2018:i:4:p446-460
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    References listed on IDEAS

    as
    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. Robert J. Gordon, 2013. "The Phillips Curve is Alive and Well: Inflation and the NAIRU During the Slow Recovery," NBER Working Papers 19390, National Bureau of Economic Research, Inc.
    3. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(2), pages 279-298.
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    More about this item

    Keywords

    Keynesian economics; monetarism; natural rate of unemployment;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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