Friedman and Lucas

The relationship between Friedman and Lucas, or new classical macroeconomics as a whole, was highly complex. The Friedmanian Phillips curve was an interesting starting point for Lucas, but he soon realized that the solution provided by Friedman was not quite satisfactory. Lucas elaborated a new approach in which rational expectations were presumed instead of the Friedmanian adaptive expectations. Due to this reformulation, the story in which the theory of the new classical Phillips curve was embedded radically changed. This modification, however, had a significant effect on Friedman’s own approach, so, as a result, the theory of the Friedmanian Phillips curve also changed. Moreover, new classical Neil Wallace, who was a graduate student at the University of Chicago between 1960 and 1963, regarded Friedman’s theoretical courses as a mess. This evaluation clearly indicates the broken relationship between Friedmanian monetarism and new classical macroeconomics.

However, it must be emphasized that in spite of this broken relationship between Lucas and Friedman, Lucas has remained a monetarist all along. He has been engaged in solving “Friedmanian” theoretical questions in a “non-Friedmanian” way.

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