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New Keynesian economics : a monetary perspective

  • Stephen D. Williamson

In this article we construct a simple analytically tractable model to explore and evaluate New Keynesian ideas. First, we show that a New Keynesian model need not exhibit Phillips curve correlations in the absence of strategic price setting by firms. Second, we conclude that New Keynesian economics needlessly neglects monetary frictions and misses out on some key insights in the process. For example, it is important to understand how the central bank should manipulate monetary quantities to support particular nominal interest rate rules

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Article provided by Federal Reserve Bank of Richmond in its journal Economic Quarterly.

Volume (Year): (2008)
Issue (Month): Sum ()
Pages: 197-218

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Handle: RePEc:fip:fedreq:y:2008:i:sum:p:197-218:n:v.94no.3
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  4. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
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  9. Caplin, Andrew S & Spulber, Daniel F, 1987. "Menu Costs and the Neutrality of Money," The Quarterly Journal of Economics, MIT Press, vol. 102(4), pages 703-25, November.
  10. Ricardo Lagos & Randall Wright, 2004. "A unified framework for monetary theory and policy analysis," Staff Report 346, Federal Reserve Bank of Minneapolis.
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  13. Frank Schorfheide & S. Boragan Aruoba, 2008. "Insights from an Estimated Search-Based Monetary Model with Nominal Rigidities," 2008 Meeting Papers 371, Society for Economic Dynamics.
  14. Marvin Goodfriend & Robert King, 1997. "The New Neoclassical Synthesis and the Role of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 231-296 National Bureau of Economic Research, Inc.
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  17. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June.
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