Single rule


According to Friedman life cycle theory concluded that the long-term average household consumption is stable, the demand is bound to be a stable currency, then the currency issued by the government should be maintained and the demand for money as stable, namely to maintain the quantitative monetary issue size, the implementation of the single monetary policy steady.


single rule proposed by Friedman monetary policy, it is called "simple rules." The so-called rules of the single monetary policy, ie excluding interest rate, credit flow, free reserves and other factors, and a certain stock of money as the only dominant factor in monetary policy, publicly announced that long-term use of the money supply growth rate of a fixed.

three problems

First, how to define the range of the quantity of money; second, how to determine the growth rate of the currency; third, whether or not the amount of money allowed growth season or year internal change.

on the number of currencies

Friedman, should be determined to currency in circulation plus commercial bank deposits, i.e., M2;

About determine monetary growth should be compatible with economic growth.

Single rule

According to his empirical study of the United States nearly a hundred years of historical data suggested the US economy's average annual growth rate of 3% annual average growth rate of employment of 1% to 2%, if the money supply does not increase , the growth rate of wages will be calculated down 1% to 2%, plus a 3% annual economic growth rate effect, prices will fall by 4% -5%, resulting in deflation, reduced consumption. However, if too much money it will bring price increases, leading to inflation and economic chaos. Therefore, if the US money supply growing at a steady rate of 4% to 5% per year, it is expected to maintain a relatively stable price level, to avoid fluctuations in the economy.

About monetary growth in the year whether to allow or seasonal variation

Friedman believes that the growth rate of a currency is determined not to allow any changes, such as special circumstances must change when, it should be announced in advance to minimize the magnitude of change.

single rule is that the US currency as a school representative M. Friedman discretionary monetary policy (ie discretionary monetary policy) proposed the opposite. Friedman believes that due to the monetary expansion or contraction of economic activity and thus affect the price level of the "time lag", so central banks or monetary authorities to take discretionary monetary policy will inevitably produce excesses policy action, adversely on economic activity the impact, which is an important reason for the West to generate inflation. Therefore advocated the implementation of a single monetary policy rule.

① unchanged quantity of money, i.e., currency zero growth. As the United States each year about 3% real economic growth, population growth rate of about 1-2%, so the prices will drop 4 to 5 percent per year. Nominal wage and price levels were decreased, but also full employment under deflationary conditions. But nominal wages fell against the workers would have been difficult to proceed smoothly.

② determine the growth rate of money supply growth by labor, money wages remain unchanged. Due to the economic growth of about 3%, commodity price levels will be reduced by 3%, which was opposed by the owners of capital, hardly smooth.

③ economic growth rate and population growth rate is the sum of the money supply growth rate. In the United States, the money supply growth rate of 4 to 5%, both to keep the price level stable, nor will decline in nominal wages, can ensure a balanced economic development Friedman believes that this is "the most appropriate the rule of". He suggested that the US money supply growth rate should stabilize at 4-5%, in addition, the government not to other forms of intervention in the economy, completely and let the market self-regulation, to maintain economic equilibrium.

main content

① to determine the definition of the money supply, broad money supply is still defined narrowly defined money supply. Modern monetarists often used to define the amount of broad money, but they believe that a narrow definition may also exhibit this rule

② to determine a percentage of the amount of money growth. Most monetarists believe that the quantity of money per year growth rate, in addition to meet the needs of real economic growth, but also must meet the additional needs for the amount of money due to the long decline in the velocity of money caused. From a practical point of view the United States, the amount of money growth rate should be maintained at 3 to 5%.

③ operational problems seasonal variations. In an annual, quarterly or month to different monetary requirements are different, more difficult to deal with changes in the operational aspects of the season. Friedman argued that the annual rate of increase may increase the monthly rate of 1/12, or weekly rate of increase per year rate of increase of 1/52 to resolve.

two different perspectives

Western economic circles of a "single rule" There are two different reactions. Agree with this rule economists believe that the role of people because of the current economic cycle and monetary reasons for the formation cycle, the lack of rigorous scientific explanation, the Western countries do not have the technical knowledge of the successful implementation of counter-cyclical monetary policy need, and multiple goals of monetary policy is difficult to balance, discretionary policy actions will lead to excesses, therefore, a single rule is desirable. Against the rule of economists following reasons:

① single rule in a completely free market economy conditions, but in the early stages of capitalist development, the implementation of liberal economic policies and metal coins in circulation system, although metal coins in circulation system with automatic adjustment function, but still can not avoid the cyclical economic crisis, to ensure the stable development of the economy;

② single rule to ignore the impact of sudden changes in the demand for money supply, such as oil price increases and poor harvests so that food prices would undermine the rule;

③ single rule is to assume that the velocity of money decreases in the rate stable, but empirical evidence that is not the case;

④ While monetary policy Delay will reduce the counter-cyclical effect, but it will not effect zero. And monetary authorities can learn lessons and improve operating techniques, to improve the effect of discretionary monetary policy. For these reasons, the monetary authorities of various countries are still mostly discretionary monetary policy to intervene in the economy.

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