Monetarist Principles and the Money Stock Growth Rule

Bennett T. McCallum

NBER Working Paper No. 630 (Also Reprint No. r0181)
Issued in February 1981
NBER Program(s):Economic Fluctuations and Growth

Given the influence of Milton Friedman ,it is hard to keep from identifying "monetarisms" with the advocacy of a policy rule that would require the money stock to grow at a constant rate and prohibit cyclical adjustments in government spending or in tax schedules. This identification is somewhat inaccurate since Karl Brunner and Allan Meltzer, the other two leading proponents of monetarism, have not always been advocates of a constant money growth rate. It may nevertheless he useful to relate one's thoughts about monetarism to Friedman's rule, as will be done in this paper. But the question that immediately arises is, what more fundamental beliefs about the economy give rise to the idea that such a rule would be socially desirable. At this more basic level there may he more agreement among monetarists than about the rule itself. in any event, it appears that there are two basic monetarist propositions that are of crucial importance, as follows. (i) Cyclical and secular movements in nominal income are primarily attributable to movements in the stock of money relative to capacity output. (ii) There is no permanent tradeoff between unemployment and inflation or any other characteristic of the path of the price level -- that is, the natural rate of unemployment hypothesis is valid.

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Document Object Identifier (DOI): 10.3386/w0630

Published: McCallum, Bennett T. "Monetarist Principles and the Money Stock Growth Rule ." The American Economic Review, Vol. 71, No. 2, (May 1981), pp. 134-138. citation courtesy of

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