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Discussion Paper Details

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Title: The Role of Financial Policy

Author(s): Roger E A Farmer

Publication Date: March 2018

Keyword(s): Keynesian economics, Monetarism and Natural rate of unemployment

Programme Area(s): Monetary Economics and Fluctuations

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 was responsible for thirty 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 neo-classical economists. My interpretation implies that government should intervene actively in financial markets to stabilize economic activity.

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Bibliographic Reference

Farmer, R. 2018. 'The Role of Financial Policy'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=12825