Non-Activist Monetary Policy from a Conflict Perspective

Richard Burdekin and Paul Burkett
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Paul Burkett: Indiana State University

Chapter 2 in Distributional Conflict and Inflation, 1996, pp 37-56 from Palgrave Macmillan

Abstract: Abstract Since Friedman’s (1959) influential arguments in favor of governing monetary policy by rules rather than discretion, the ‘New Classical’ school has added a significant twist to this debate. Indeed, application of the rational expectations hypothesis to a classical, frictionless model (as exemplified by Sargent and Wallace (1975)) provides an extreme case in which economic agents’ optimizing adjustments render systematic monetary stabilization policies ineffective, not only in the long run (Friedman, 1968) but also in the short run. According to Barro (1976), the New Classical analysis implies that only where the policymaker has some informational advantage over the private sector is there any role for stabilization policy under rational expectations. Otherwise, ‘the conclusions for monetary policy are in accord with the philosophy behind Friedman’s proposal for a constant growth rate rule’ (ibid, p.26).

Keywords: Monetary Policy; Central Bank; Monetary Authority; Validation Rate; Inflation Expectation (search for similar items in EconPapers)
Date: 1996
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-37173-6_3

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DOI: 10.1057/9780230371736_3

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