Milton Friedman and the Case for Flexible Exchange Rates and Monetary Rules

Milton Friedman was a strong proponent of flexible exchange rates accompanied by a domestic monetary rule. He believed that such a combination would deliver superior economic performance and would also be more consistent with democratic principles than a regime based on fixed exchange rates and discretionary monetary policy. John Taylor’s recent proposal of a rules-based international monetary system –- based on flexible exchange rates and a Taylor rule for each country - is very much in that spirit and represents a modern rendition of Friedman’s views. Under both the Friedman and Taylor proposals, instead of policy coordination among countries there would be policy harmonization