This dictionary entry defines the development of new Keynesian macroeconomics (NKM) since the 1980s. I argue that the key defining feature NKM is the introduction of imperfect competition, making price and/or wage setting endogenous and hence allowing for a rigorous understanding of nominal rigidity. This has led to a shift away from perfect competition in macroeconomics. The combination of NKM with dynamic macroeconomic modelling has led to the current orthodoxy: the new-neoclassical synthesis. Dynamic wage and price models lead to monetary neutrality in steady-state, non-neutrality out of steady-state. Other themes in NKM include efficiency wage theory and coordination failure.
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Paper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number
E2007/3.
Length: 11 pages Date of creation: Feb 2007 Date of revision: Publication status: Forthcoming in New Palgrave Dictionary of Economics and Law, 2nd Edition Handle: RePEc:cdf:wpaper:2007/3
Find related papers by JEL classification: E1 - Macroeconomics and Monetary Economics - - General Aggregative Models E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
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