Friedman, Monetarism and Quantitative Easing
Abstract
This paper argues that the theoretical origin of Quantitative Easing (QE) programs, as a general concept, clearly links to Friedman’s (and monetarist) ideas, but that the specific implementation of QE operations to cope with the 2008 financial crisis does not comply with key principles developed by Friedman. Based on Friedman’s work during the sixties, I contend that his monetary framework links to QE through what he (and Anna Schwartz) called the “monetary” effects of monetary policy and not the portfolio balance effect highlighted by Nelson (2011) and Bernanke (2012). The combination of the “monetary” effects and the stabilizing role of monetary policy should produce QE programs with a path of the monetary base (central bank assets) and M2 that differs dramatically from what transpired under the 2008-2014 QE arrangements based on the portfolio balance effect.
References
[2] Bernanke, S. B. 2012. Monetary Policy since the Onset of the Crisis. Federal Reserve Bank of Kansas City Economic Symposium (Jackson Hole, Wyoming)
[3] Fawley, B. W., and Neely C. J. 2013. Four Stories of Quantitative Easing. Federal Reserve Bank of St. Louis Review, 95(1).
[4] Friedman, M. 1960. A Program for Monetary Stability. Fordham University Press
[5] Friedman, M. 1961. The Lag in Effect of Monetary Policy. In M. Friedman, The Optimum Quantity of Money. Transaction Publishers.
[6] Friedman, M. 1967. The Role of Monetary Policy. In M. Friedman, The Optimum Quantity of Money. Transaction Publishers.
[7] Friedman, M., and Schwartz, A. J. 1963. A Monetary History of the United States, 1867-1960. Princeton University Press.
[8] Friedman, M., and Schwartz, A. J. 1963. Money and Business Cycles. In M. Friedman, The Optimum Quantity of Money. Transaction Publishers.
[9] Greenwood, J. 2006. Monetary Policy and the Bank of Japan. In Issues in Monetary Policy. The relationship between money and financial markets. Edited by Kent Matthews and Philip Booth. John Wiley & Sons, Ltd.
[10] Handa, J. 2009. Monetary Economics. Second Edition. Routledge.
[11] Meltzer, A.H. 2001. The Transmission Process. In The Monetary Transmission Process. Edited by the Deutsche Bundesbank. Palgrave Publishers.
[12] Nelson, E. 2011. Friedman’s Monetary Economics in Practice. Finance and Economics Discussion Series. Division of Research & Statistics and Monetary Affairs. Federal Reserve Board.
[13] Olivo, T. V. 2011. Tópicos Avanzados de Teoría y Política Monetaria. Editorial Arte Professional.
[14] Schmitt-Grohé, S., and Uribe, M., 2009. Liquidity traps with global Taylor Rules, International Journal of Economic Theory, The International Society for Economic Theory, 5(1): 85-106.
[15] Snowdon, B., and Vane, H. R. 2005. Modern Macroeconomics. Its Origins, Development and Current State. Edward Elgar Publishing.
[16] Taylor, B. J., and Williams, C. J. 2010. Simple and Robust Rules for Monetary Policy. NBER Working Paper Series, 15908.
[17] Taylor, J. B. 2015. A Monetary Policy for the Future. Economics One. A blog by John B. Taylor.
[18] Walsh, Carl (2010). Monetary Theory and Policy. Third Edition. The MIT Press.
[19] Williamson, S. 2014. Macroeconomics. Fifth Edition. Pearson
[20] Woodford, M. 2007. How Important is Money in the Conduct of Monetary Policy. NBER Working Paper.
Non-Exclusive License under Attribution 4.0 International Public License (CC BY 4.0):
This ‘Article’ is distributed under the terms of the license CC-BY 4.0., which lets others distribute, remix, adapt, and build upon this article, even commercially, as long as they credit this article for the original creation. ASERS Publishing will be acknowledged as the first publisher of the Article and a link to the appropriate bibliographic citation (authors, article title, volume issue, page numbers, DOI, and the link to the Published Article on ASERS Publishing’ Platform) must be maintained.