Celebrating humanity's flourishing through the spread of capitalism and the rule of law
19 Aug 2014 1 Comment
in macroeconomics, Milton Friedman, monetarism, monetary economics Tags: Milton Friedman, monetarism, rules versus discretion
I am not so sure the above would be mimicking Milton Friedman’s monetary policy dashboard as claimed.
Milton Friedman advocated a fixed monetary policy growth where the monetary supply would grow at 4% year in, year out no matter what happened in the economy. Towards the end of his career, he advocated replacing the Fed with a computer.
12 Aug 2014 Leave a comment
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01 Aug 2014 1 Comment
in budget deficits, fiscal policy, macroeconomics, Milton Friedman, monetarism Tags: budget deficits, fiscal policy, fiscal stimulus, Milton Friedman
The
28 Jul 2014 Leave a comment
in business cycles, macroeconomics, Milton Friedman, monetarism Tags: boom and bust, Milton Friedman, plucking model, recoveries from recessions
Milton Friedman (1993) proposed a model of the depth of recessions and steepness of recoveries built on two empirical regularities:
The strength of a recovery should be positively correlated with depth of the recession but there should be no correlation between expansions and recessions (Friedman 1993; Alchian 1969).
The figure below illustrates Friedman’s model, which likens the time path of output to a string on the underside of an upward sloping board that is plucked downward at random intervals to various extents into busts that are followed by booms.
Source: Garrison (1996).
The upward sloping board plotted as a thick line in the figure represents a ceiling on feasible output and employment in a given year that is set by resource and technology availabilities. The upward slope of this board accounts for trend real GDP growth over time due to technological progress and other factors.
The business cycle starts with a bust caused by an adverse policy or other shock and is then followed by a boom as the market self-adjusts and the policy errors are reversed. Without the initial adverse policy or other shock, there would neither be a bust nor a boom.
The correlation between busts and booms arises from the monetary contraction that caused the bust eventually inducing an offsetting correction in monetary policy.
The monetary contraction that pushed or plucked output below the upward sloping ceiling is later followed by a monetary expansion that offset the earlier contraction. With the amplitude of monetary expansions correlated to offset the prior contractions, GDP growth will have similar plucks or falls and rebounds to the upward sloping output ceiling because of the link albeit with a lag between monetary growth and output fluctuations. The increases and decreases in monetary growth are independent policy choices with unique causes.
The associated upward and downward movements in GDP growth are not correlated with each other but should be correlated with the prior fluctuations in monetary growth. There would not be a bust and later boom if there is no monetary contraction to start the cycle. This is why Friedman (1993) proposed that the depths of busts are unrelated to the duration and strength of prior economic booms.
Celebrating humanity's flourishing through the spread of capitalism and the rule of law
Celebrating humanity's flourishing through the spread of capitalism and the rule of law
Celebrating humanity's flourishing through the spread of capitalism and the rule of law
Celebrating humanity's flourishing through the spread of capitalism and the rule of law
Celebrating humanity's flourishing through the spread of capitalism and the rule of law
Celebrating humanity's flourishing through the spread of capitalism and the rule of law
Celebrating humanity's flourishing through the spread of capitalism and the rule of law
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