The new keynesian monetary theory: a critical analysis

In the last 20 years, the New Keynesians (henceforth, NKs) have developed a theoretical approach which aims to elaborate an alternative monetary theory to the on traditionally associated with Keynes. The distinctive feature of this new approach is its emphasis on the credit market and the role played by financial intermediaries rather than the money market; the importance given to the credit market is justified by the presence of asymmetrical information. The objective of this paper is twofold: i) to show that the presence of asymmetric information constitutes a weak premise on which to build a Keynesian theory of credit and financial intermediaries; ii) to outline the elements on which a theory of credit consistent with Keynes's thinking can be built.The paper is divided into three sections. In the first one, the most important aspects of the NK's theory are described; the limitations of this theoretical approach are then demonstrated in the second section; in the third section, the elements which should characterise a Keynesian theory of credit and financial institutions are outlined; finally, in the fourth section, a macroeconomic model illustratingthe characteristics of the theory described in the third section is presented.