Trade-offs in Monetary Policy

  • Milton Friedman
  • David Laidler


In 1958, A. W. Phillips came up with an empirical negative relation between the rate of inflation and the level of unemployment, quickly christened the Phillips curve (Phillips, 1958). Phillips himself did not present the curve as a policy tool, but less than two years later Paul Samuelson and Robert Solow published a celebrated article in the American Economic Review (1960) in which they did. Given the long period for which the Phillips curve appeared to hold in Britain, Samuelson and Solow concluded that it could be treated as a long-run structural equation which provided the missing equation that the then conventional Keynesian system needed. They treated it as a menu from which the monetary authorities could choose. By tolerating higher inflation they could experience lower average unemployment and vice versa.


Monetary Policy Central Bank Policy Rule Phillips Curve Inflation Target 
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© Milton Friedman and David Laidler 2010

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  • Milton Friedman
  • David Laidler

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