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Trade-offs in Monetary Policy

In: David Laidler’s Contributions to Economics

Author

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  • Milton Friedman
  • David Laidler

Abstract

In 1958, A. W. Phillips came up with an empirical negative relation between the rate of inflation and the level of unemployment, quickly christened the Phillips curve (Phillips, 1958). Phillips himself did not present the curve as a policy tool, but less than two years later Paul Samuelson and Robert Solow published a celebrated article in the American Economic Review (1960) in which they did. Given the long period for which the Phillips curve appeared to hold in Britain, Samuelson and Solow concluded that it could be treated as a long-run structural equation which provided the missing equation that the then conventional Keynesian system needed. They treated it as a menu from which the monetary authorities could choose. By tolerating higher inflation they could experience lower average unemployment and vice versa.

Suggested Citation

  • Milton Friedman & David Laidler, 2010. "Trade-offs in Monetary Policy," Palgrave Macmillan Books, in: Robert Leeson (ed.), David Laidler’s Contributions to Economics, chapter 7, pages 114-127, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-24841-0_7
    DOI: 10.1057/9780230248410_7
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    Citations

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    Cited by:

    1. Beck, Guenter W. & Wieland, Volker, 2008. "Central bank misperceptions and the role of money in interest-rate rules," Journal of Monetary Economics, Elsevier, vol. 55(Supplemen), pages 1-17, October.
    2. Sylvie Rivot, 2015. "Rule-based frameworks in historical perspective: Keynes' and Friedman's monetary policies versus contemporary policy-rules," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 22(4), pages 601-633, August.
    3. Peter Howitt, 2007. "Edmund Phelps: Macroeconomist and Social Scientist," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(2), pages 203-224, June.

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