Under a fixed exchange rate regime, the opposite is true. In Canada, Mr. Mundell became intrigued by economic trends in Western Canada that ran counter to those in the East and the first to analyze the costs and benefits of disparate regions sharing a national currency. In a celebrated 1961 article, Mr. Mundell set out the criteria necessary for a successful monetary union among regions. He found that the migration of workers was particularly important to offset regional unemployment that would result under a shared currency. He also concluded that the optimum currency area is not necessarily defined by the borders of a sovereign nation.
Monetarists blame failure of government and central bank policy for economic downturns.
The best way for central banks to prevent inflation, they argue, is to dispense with interest rate targets and stabilize growth in the money supply instead. He also champions a flat-rate income tax, school vouchers, private social security accounts, and the legalization of drugs. In 1976, he received the Prize in Economic Sciences in Memory of Alfred Nobel. Mr. Friedman first demonstrated that the accepted assumption of the simple trade-off between unemployment and the rate of inflation was only a temporary phenomenon. He also made the historical case that Federal Reserve policy sparked and prolonged the Great Depression.