Monetary Trends in the United States and the United Kingdom: Their Relation to Income, Prices, and Interest Rates, 1867-1975

Monetary Trends in the United States and the United Kingdom: Their Relation to Income, Prices, and Interest Rates, 1867-1975

Milton Friedman, Anna Schwartz

Language: English

Pages: 700

ISBN: 2:00218213

Format: PDF / Kindle (mobi) / ePub


Monetary Trends in the United States and the United Kingdom: Their Relation to Income, Prices, and Interest Rates, 1867-1975

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the United Kingdom; the transmission process from money to income, output, and prices; the relationship between money and interest rates; and the nature of long swings. (Continued on back flap) Monetary Trends in the United States and the United Kingdom A National Bureau of Economic Research Monograph Monetary Trends in the United States and the United Kingdom Their Relation to Income, Prices, and Interest Rates, 1867-1975 Milton Friedman and Anna J. Schwartz The University of Chicago

done so by regarding quantity available to purchase as adjusting rapidly in the market period largely through changes in inventories, and in the short-run period through changes in output. The statement that Keynes assumed prices rigid is an oversimplification, since he distinguished between the price level of products and the wage rate and allowed for a change in the ratio of prices to wages, even before the point of full employment. However, this change in prices in wage-units plays no

General Theoretical Framework equilibrium path of prices would be the same as that of nominal income, except that it would have a slope of 3 percent per year less, to allow for the growth in real income. However, equilibrium real output will not be unaffected by this monetary change. The exact effect depends on just how real output is measured, in particular whether it includes or excludes the nonpecuniary services of money. If it includes them, as in principle it should, then the level of real

2 from peak to peak, whereas, if phase 1 is a contraction phase, Zx will run from peak to peak and Z 2 from trough to trough. The time coordinates of these two cycle bases measured from the midpoint of the first observation in phase 1 are: (19) n1 + , so the difference between the two time coordinates is (20) T(Z2)-T(Z1)=^ + ^ . Hence the rate of change between them is n2Y2 + n?Y^ (21) Z 2 — Zx n \Y\ + n2Y2 n2 + n3 T(Z2) - T{Z{) «x + n2 rii + n3 2 which can be reduced to wi(w2 +

16-21. See also M. D. Bordo and L. Jonung, "The Long-Run Behavior of Money in Five Advanced Countries, 1870-1975," Economic Inquiry 19 (January 1981): 96-116. 17. This suggestion has been made before by a number of reviewers of our Monetary History. In particular, see the comment by James Tobin, "The Monetary Interpretation of History," American Economic Review 55 (June 1965): 464-85. 151 Money Balances at the Beginning and End of a Century About one-quarter of the annual rate of change over

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