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Economic policy as expectations management: Keynes’ and Friedman's complementary approaches

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  • Sylvie Rivot

Abstract

We investigate how Keynes and Friedman, respectively, address the issue of the disequilibria at stake in a monetary economy through a shared concern for the formation of expectations. We show that Keynes was interested in the coordination of long-term expectations regarding non-monetary assets prospective yields, while Friedman focused on the adaptation of short-term nominal expectations. Regarding the remedies to these disequilibria, both economists called for devices that aim to stabilise market expectations. As a direct outcome, Keynes designed policies that aim to stabilise the long-term state of expectations while Friedman basically aimed at the acceleration of the competitive adjustment process.

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  • Sylvie Rivot, 2017. "Economic policy as expectations management: Keynes’ and Friedman's complementary approaches," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 24(5), pages 1053-1084, September.
    • Handle: RePEc:taf:eujhet:v:24:y:2017:i:5:p:1053-1084
    DOI: 10.1080/09672567.2017.1323939
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    References listed on IDEAS

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    1. M. G. Hayes, 2006. "The Economics of Keynes," Books, Edward Elgar Publishing, number 12601.
    2. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6, National Bureau of Economic Research, Inc.
    3. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867–1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1.
    4. Milton Friedman & Anna J. Schwartz, 1982. "Monetary Trends in the United States and United Kingdom: Their Relation to Income, Prices, and Interest Rates, 1867–1975," NBER Books, National Bureau of Economic Research, Inc, number frie82-2.
    5. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1.
    6. Mark Hayes, 2006. "The Economics of Keynes: A New Guide to The General Theory," Books, Post Keynesian Economics Society (PKES), number nggt.
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    1. Rivot, Sylvie, 2021. "Reading Keynes’s policy papers through the prism of his Treatise on Probability: information, expectations and revision of probabilities in economic policy," OSF Preprints s5qp9, Center for Open Science.
    2. Haan, Peter & Peichl, Andreas & Schrenker, Annekatrin & Weizsäcker, Georg & Winter, Joachim, 2022. "Expectation management of policy leaders: Evidence from COVID-19," Journal of Public Economics, Elsevier, vol. 209(C).

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