Monetarism

Part of a series on
Macroeconomics
Basic concepts Aggregate demand Aggregate supply Business cycle CAGR Deflation Demand shock Disinflation Effective demand Expectations Adaptive Rational Financial crisis Growth Inflation Demand-pull Cost-push Interest rate Investment Liquidity trap Measures of national income and output GDP GNI NNI Microfoundations Money Endogenous Money creation Demand for money Liquidity preference Money supply National accounts SNA Nominal rigidity Price level Recession Shrinkflation Stagflation Supply shock Saving Unemployment
Policies Fiscal Monetary Commercial Central bank Universal basic income
Models IS–LM AD–AS Keynesian cross Multiplier Accelerator Phillips curve Arrow–Debreu Harrod–DomarНмиф Solow–Swan Ramsey–Cass–Koopmans Overlapping generations General equilibrium DSGE Endogenous growth Matching theory Mundell–Fleming Overshooting NAIRU
Related fields Econometrics Economic statistics Monetary economics Development economics International economics
Schools Mainstream Keynesian Neo- New Monetarism New classical Real business-cycle theory Stockholm Supply-side New neoclassical synthesis Saltwater and freshwater Heterodox Austrian Chartalism Modern monetary theory Ecological Post-Keynesian Circuitism Disequilibrium Marxian Market monetarism
People François Quesnay Adam Smith Thomas Robert Malthus Karl Marx Léon Walras Knut Wicksell Irving Fisher Wesley Clair Mitchell John Maynard Keynes Alvin Hansen Michał Kalecki Gunnar Myrdal Simon Kuznets Joan Robinson Friedrich Hayek John Hicks Richard Stone Hyman Minsky Milton Friedman Paul Samuelson Lawrence Klein Edmund Phelps Robert Lucas Jr. Edward C. Prescott Peter Diamond William Nordhaus Joseph Stiglitz Thomas J. Sargent Paul Krugman N. Gregory Mankiw
See also Macroeconomic model Publications in macroeconomics Economics Applied Microeconomics Political economy Mathematical economics
Money portal Business portal
v t e

Monetarism is a school of thought in monetary economics that emphasizes the role of policy-makers in controlling the amount of money in circulation. It gained prominence in the 1970s but was mostly abandoned as a direct guidance to monetary policy during the following decade because of the rise of inflation targeting through movements of the official interest rate.

The monetarist theory states that variations in the money supply have major influences on national output in the short run and on price levels over longer periods. Monetarists assert that the objectives of monetary policy are best met by targeting the growth rate of the money supply rather than by engaging in discretionary monetary policy.^[1] Monetarism is commonly associated with neoliberalism.^[2]

Monetarism is mainly associated with the work of Milton Friedman, who was an influential opponent of Keynesian economics, criticising Keynes's theory of fighting economic downturns using fiscal policy (e.g. government spending). Friedman and Anna Schwartz wrote an influential book, A Monetary History of the United States, 1867–1960, and argued that inflation is "always and everywhere a monetary phenomenon".^[3]

Although opposed to the existence of the Federal Reserve,^[4] Friedman advocated, given its existence, a central bank policy aimed at keeping the growth of the money supply at a rate commensurate with the growth in productivity and demand for goods. Money growth targeting was mostly abandoned by the central banks who tried it, however. Contrary to monetarist thinking, the relation between money growth and inflation proved to be far from tight. Instead, starting in the early 1990s, most major central banks turned to direct inflation targeting, relying on steering short-run interest rates as their main policy instrument.^{[5]: 483–485} Afterwards, monetarism was subsumed into the new neoclassical synthesis which appeared in macroeconomics around 2000.