THE MONETARIST POLICY DEBATE: AN INFORMAL RETROSPECTIVE

This essay offers a critical sketch of the Keynesian-monetarist debate about monetary policy that took place in the United States in the second half of the 20th. century.1 This debate has not disappeared altogether. Currently discussed issues, such as inflation targeting and central-bank transparency, are extensions of the older debate adapted to current circumstances. My discussion is informal and impressionistic and tries to convey the flavor of the debate rather than to contrast fully articulated models. I start by sketching the situation after World War II when American monetarism developed, then take up the main issues in this debate, and the relation of the current monetary-policy consensus to monetarism, and conclude with an evaluation of this debate.2 In such a discussion one should be open about where one is coming from. I got involved in the issues of the debate at a very early stage, have a strong Friedmanian methodological preference for combining theoretical analysis with empirical testing, started out with a more or less Keynesian orientation with respect to theory, and then shifted a good part of the way into the monetarist camp, but was never a full-blooded monetarist, or accepted by monetarists as "one of us".