ABSTRACT
Milton Friedman is said to have been responsible for setting off a change in theory that enabled the simple Phillips curve and the natural unemployment rate hypothesis to be overcome; to argue that permanent increases in inflation have negative consequences for economic growth and employment because they have a negative influence on economic efficiency (Friedman 1977). This could well be the starting point for the consecration of a change in economic policy that dominated strategies for twenty years. One basic reason why this economic policy framework survived lies in the fact that it worked well for a long period from the late 1980s to the onset of the financial crisis in 2007. This period was characterised by a substantial reduction in the variability of short-term trends in both output and inflation, to the point where it became known as the Great Moderation.
