Milton Friedman began his career as both a statistician and an economist, making original contributions in statistics before focusing on economics. Formative early research experiences led him to accord particular importance to measurement errors; and he was strongly influenced by NBER-style analysis. In that light, this chapter examines Friedman’s approach to empirical modeling and focuses on his study of money demand. Friedman employed both model augmentation and data adjustment, where the latter included phase averaging and adjustments for changing financial sophistication. To illustrate, this chapter re-analyzes the final U.S. money-demand equations in Friedman and Schwartz’s 1982 book Monetary Trends in the United States and the United Kingdom: Their Relation to Income, Prices, and Interest Rates, 1867–1975.
Ericsson, Neil R., Hendry, D. F. and Stedman B. Hood, (2016). `Milton Friedman as an Empirical Modeler’. In Cord R.A. and Hammond J.D. (eds.) Milton Friedman: Contributions to Economics and Public Policy, Oxford University Press, pp91-142.