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New Keynesian macroeconomics: Entry For New Palgrave Dictionary of Economics, 2nd Edition

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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.

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Length: 11 pages
Date of creation: Feb 2007
Publication status: Forthcoming in New Palgrave Dictionary of Economics and Law , 2nd Edition
Handle: RePEc:cdf:wpaper:2007/3
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