What Would Milton Friedman Say about the Coordination of Monetary and Fiscal Policy?


Early in his career, Milton Friedman proposed a coordinated rules-based approach to monetary and fiscal policy, which he then abandoned for a simple constant money growth rule. Both rules were motivated by his goal of long-run economic stability and his belief that discretionary policy would be destabilizing. What prompted Friedman to change his view was his interpretation of empirical evidence showing that monetary policy dominates fiscal policy in determining macroeconomic outcomes, rendering fiscal policy ineffective.