Short-Run and Long-Run Effects of Milton Friedman's Presidential Address

Robert Hall () and Thomas Sargent

Journal of Economic Perspectives, 2018, vol. 32, issue 1, 121-34

Abstract: The centerpiece of Milton Friedman's (1968) presidential address to the American Economic Association, delivered in Washington, DC, on December 29, 1967, was the striking proposition that monetary policy has no longer-run effects on the real economy. Friedman focused on two real measures, the unemployment rate and the real interest rate, but the message was broader—in the longer run, monetary policy controls only the price level. We call this the monetary-policy invariance hypothesis. By 1968, macroeconomics had adopted the basic Phillips curve as the favored model of correlations between inflation and unemployment, and Friedman used the Phillips curve in the exposition of the invariance hypothesis. Friedman's presidential address was commonly interpreted as a recommendation to add a previously omitted variable, the rate of inflation anticipated by the public, to the right-hand side of what then became an augmented Phillips curve. We believe that Friedman's main message, the invariance hypothesis about long-term outcomes, has prevailed over the last half-century based on the broad sweep of evidence from many economies over many years. Subsequent research has not been kind to the Phillips curve, but we will argue that Friedman's exposition of the invariance hypothesis in terms of a 1960s-style Phillips curve is incidental to his main message.

JEL-codes: B22 B31 E24 E31 E43 E52 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.1257/jep.32.1.121
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
https://www.aeaweb.org/articles?id=10.1257/jep.32.1.121 (application/pdf)
https://www.aeaweb.org/content/file?id=6356 (application/zip)
https://www.aeaweb.org/articles/attachments?retrie ... fY1lbO_zK73uWdGs2Xgx (application/zip)

Related works:
Working Paper: Short-Run and Long-Run Effects of Milton Friedman's Presidential Address (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:jecper:v:32:y:2018:i:1:p:121-34

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

Journal of Economic Perspectives is currently edited by Enrico Moretti

More articles in Journal of Economic Perspectives from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().