macroeconomics Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics dealing with performance, structure, behavior, and decision-making of an economy as a whole. For example, using interest rates, taxes, and ...

, Friedman's k-percent rule (named for

Milton Friedman Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist and statistician who received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory and the ...

) is the

monetarist Monetarism is a school of thought in monetary economics that emphasizes the role of governments in controlling the amount of money in circulation. Monetarist theory asserts that variations in the money supply have major influences on natio ...

proposal that the

money supply In macroeconomics, the money supply (or money stock) refers to the total volume of currency held by the public at a particular point in time. There are several ways to define "money", but standard measures usually include currency in circu ...

should be increased by the

central bank A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union, and oversees their commercial banking system. In contrast to a commercial bank, a centra ...

by a constant

percentage In mathematics, a percentage (from la, per centum, "by a hundred") is a number or ratio expressed as a fraction of 100. It is often denoted using the percent sign, "%", although the abbreviations "pct.", "pct" and sometimes "pc" are also use ...

rate every year, irrespective of business cycles.

Definition

According to

"The stock of money hould beincreased at a fixed rate year-in and year-out without any variation in the rate of increase to meet

cyclical Cycle, cycles, or cyclic may refer to: Anthropology and social sciences * Cyclic history, a theory of history * Cyclical theory, a theory of American political history associated with Arthur Schlesinger, Sr. * Social cycle, various cycles in soc ...

needs." (Friedman 1960) Giving governments any flexibility in setting money growth will lead to inflation according to Friedman. The main policy to be avoided is countercyclical

monetary policy Monetary policy is the policy adopted by the monetary authority of a nation to control either the interest rate payable for federal funds, very short-term borrowing (borrowing by banks from each other to meet their short-term needs) or the money s ...

, the standard

Keynesian Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomic theories and models of how aggregate demand (total spending in the economy) strongly influences economic output an ...

policy recommendation at the time. For this reason, the central bank should be forced to expand the money supply at a constant rate, equivalent to the rate of growth of real GDP. This is not to be confused with the Friedman Rule, which is a policy of zero nominal

interest rates An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, th ...

References

Friedman's Money Supply Rule vs. Optimal Interest Rate Policy

Model Uncertainty and Delegation: A Case for Friedman's k-percent Money Growth Rule

A K-Percent Rule for Monetary Policy in West Germany

Rules, discretion and reputation in a model of monetary policy, Robert J. Barro, David B. Gordon

Discretion versus policy rules in practice, John B. Taylor

Definition

See also

References

Further reading