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The State of New Keynesian Economics: A Partial Assessment

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  • Jordi Galí

Abstract

In August 2007, when the first signs emerged of what would come to be the most damaging global financial crisis since the Great Depression, the New Keynesian paradigm was dominant in macroeconomics. Ten years later, tons of ammunition has been fired against modern macroeconomics in general, and against dynamic stochastic general equilibrium models that build on the New Keynesian framework in particular. Those criticisms notwithstanding, the New Keynesian model arguably remains the dominant framework in the classroom, in academic research, and in policy modeling. In fact, one can argue that over the past ten years the scope of New Keynesian economics has kept widening, by encompassing a growing number of phenomena that are analyzed using its basic framework, as well as by addressing some of the criticisms raised against it. The present paper takes stock of the state of New Keynesian economics by reviewing some of its main insights and by providing an overview of some recent developments. In particular, I discuss some recent work on two very active research programs: the implications of the zero lower bound on nominal interest rates and the interaction of monetary policy and household heterogeneity. Finally, I discuss what I view as some of the main shortcomings of the New Keynesian model and possible areas for future research.

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  • Jordi Galí, 2018. "The State of New Keynesian Economics: A Partial Assessment," Journal of Economic Perspectives, American Economic Association, vol. 32(3), pages 87-112, Summer.
  • Handle: RePEc:aea:jecper:v:32:y:2018:i:3:p:87-112
    Note: DOI: 10.1257/jep.32.3.87
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    Cited by:

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    3. Ray C. Fair, 2019. "Some Important Macro Points," Cowles Foundation Discussion Papers 2165, Cowles Foundation for Research in Economics, Yale University.
    4. Michel De Vroey, 2019. "Preface to the Chinese Edition of A History of Macroeconomics from Keynes to Lucas and Beyond," LIDAM Discussion Papers IRES 2019006, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).

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    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • G01 - Financial Economics - - General - - - Financial Crises

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