Editing Franco Modigliani (section)

==Contributions to economic theory==
Modigliani, beginning in the 1950s, was an originator<ref>Modigliani, Franco & Richard H. Brumberg (1954) "Utility analysis and the Consumption Function: An Interpretation of Cross-Section Data", [[Kenneth K. Kurihara]] (editor) ''Post-Keynesian Economics'', New Brunswick: [[Rutgers University]] Press, 1954, pp. 388–436</ref> of the [[life-cycle hypothesis]], which attempts to explain the level of [[saving]] in the economy.<ref>{{cite journal |last=Modigliani |first=Franco |title=The Life Cycle Hypothesis of Saving, the Demand for Wealth and the Supply of Capital |journal=[[Social Research (journal)|Social Research]] |year=1966 |volume=33 |issue=2 |pages=160–217 |jstor=40969831 }}</ref> The hypothesis that [[consumer]]s aim for a stable level of [[Consumption (economics)|consumption]] throughout their lifetime (for example by saving during their working years and then spending during their [[retirement]]).

The [[rational expectations]] hypothesis is considered by economists<ref name=exp>Wade-Hands, Douglas (1986) ''Modigliani And Grunberg : A Precursor To Rational Expectations?'', [[University of Puget Sound]]</ref> to originate in the <ref>Visco, Ignazio (1984) "Price expectations in rising inflation", ''Contributions to economic analysis'', Volume 152, North-Holland, 1984, {{ISBN|0444868364}}, {{ISBN|9780444868367}}</ref> paper written by Modigliani and Emile Grunberg in 1954.<ref name=grun>Grunberg, E. & Franco Modigliani (1954) "The Predictability of Social Events," ''[[Journal of Political Economy]]'', '''62''', pp. 465–478, December 1954</ref><ref>{{Cite book|title=Lives of the Laureates: Ten Nobel Economists|author1=Breit, William |author2=Spencer, Roger W.|publisher=MIT Press |year=1990 |isbn=978-0262023085 |location=Massachusetts}}</ref>

When he was a member of the [[Carnegie Mellon University]] faculty, he formulated in 1958, along with [[Merton Miller]], the [[Modigliani–Miller theorem]] for [[corporate finance]].<ref name=mm1>Miller, Merton H. & Franco Modigliani (1958) "[https://gvpesquisa.fgv.br/sites/gvpesquisa.fgv.br/files/arquivos/terra_-_the_cost_of_capital_corporation_finance.pdf The cost of capital, corporate finance and the theory of investment]", ''[[The American Economic Review]]'', Vol. XLVIII, June 1958, #3, pp. 261–297. The article was a revised version of a paper delivered at the annual meeting of the [[Econometric Society]] in December 1956.</ref><ref name=mm2>Miller, Merton H. & Franco Modigliani (1963) "Corporate Income Taxes and the Cost of Capital: A Correction", ''[[The American Economic Review]]'', Vol. 53, No. 3, June 1963, pp. 433–443</ref> The theorem posits that, under certain assumptions,<ref group=note>The theorem assumes an economic environment with an [[efficient market]] and without [[tax]]es, [[bankruptcy]] costs, [[agency cost]]s, and [[asymmetric information]].</ref> the value of a firm is not affected by whether it is financed by [[Stock|equity]] (selling shares) or by [[debt]] (borrowing money), meaning that the [[debt-to-equity ratio]] is unimportant for private firms.<ref name=mm1/><ref name=mm2/>

In the early 1960s, his response,<ref>[[Albert Ando|Ando, Albert]] & Franco Modigliani (1965) "The relative stability of monetary velocity and the investment multiplier", ''[[The American Economic Review]]'', 55.4, pp.&nbsp;693–728</ref> co-authored with [[Albert Ando]], to the 1963 paper<ref>[[Milton Friedman|Friedman, Milton]] & [[David I. Meiselman]] (1963) "The Relative Stability of Monetary Velocity and the Investment Multiplier in the United States, 1897–1958", ''Stabilization Policies: A Series of Research Studies Prepared for the [[Commission on Money and Credit]]'' by E. C. Brown [[et al]], Englewood Cliffs, NJ: Prentice-Hall: 1963, pp.&nbsp;165–268</ref> of [[Milton Friedman]] and [[David I. Meiselman]], initiated the so-called "monetary/fiscal policy debate" among economists, which went on for more than sixty years.{{citation needed|date=November 2019}}

In 1975, Modigliani, in a paper<ref>{{cite journal |last1=Modigliani |first1=Franco |first2=Lucas |last2=Papademos |year=1975 |title=Targets for Monetary Policy in the Coming Year |journal=[[Brookings Papers on Economic Activity]] |volume=1975 |issue=1 |pages=141–165 |jstor=2534063 |doi=10.2307/2534063|url=https://www.brookings.edu/wp-content/uploads/1975/01/1975a_bpea_modigliani_papdemos.pdf }}</ref> whose co-author was his former student [[Lucas Papademos]],<ref group= note>Papademos went on to become Governor of the [[Bank of Greece]] from 1994 until 2002, and [[Prime Minister of Greece]] from November 2011 to May 2012.</ref> introduced the concept of the "NIRU", the non-inflationary rate of [[unemployment]],<ref group=note>Subsequently known as the "[[NAIRU|non-accelerating inflation rate of unemployment]]" (NAIRU)</ref> ostensibly an improvement over the "[[natural rate of unemployment]]" concept.<ref>{{Cite web |last=Coe |first=David T |title=Nominal Wages. The NAIRU and Wage Flexibility. |publisher=Organisation for Economic Co-operation and Development |url=http://www.oecd.org/dataoecd/59/19/33917832.pdf}}</ref> The terms refer to a level of unemployment below which [[inflation]] rises.<ref group=note>Inflation "rises"; it does not "accelerate," as can often be misread from the acronym [[NAIRU]]</ref>

In 1997, Modigliani and his granddaughter, Leah Modigliani, developed what is now called the "[[Modigliani Risk-Adjusted Performance]]," a measure of the risk-adjusted returns of an [[investment portfolio]] that was derived from the [[Sharpe ratio]], adjusted for the risk of the portfolio relative to that of a benchmark, e.g. the "market."<ref>Modigliani, Franco & Leah Modigliani (1997) "Risk-Adjusted Performance", ''[[The Journal of Portfolio Management]]'',  Winter 1997, 23 (2), pp. 45–54</ref>