Milton Friedman and nominal income targeting

Abstract

AbstractFor much of his career, Milton Friedman advocated a constant monetary growth rule to limit central bank discretion and to achieve long‐term price stability. By contrast, Friedman wrote little on nominal income stabilization as an alternative goal for monetary policy. Nevertheless, a careful examination of Friedman's work shows that in his view the desirability of a constant monetary growth rule depended on its ability to stabilize nominal income. Friedman's preference for simple rules, requiring minimal knowledge on the part of central banks, would have given him strong reason to support nominal income targeting over central banks' standard practice of inflation targeting. Several strategies for achieving a nominal income target are considered, including a modified Taylor rule and several monetary base rules.