Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
The State of New Keynesian Economics: A Partial Assessment
Journal of Economic Perspectives
vol. 32,
no. 3, Summer 2018
(pp. 87–112)
(Complimentary)
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.Citation
Galí, Jordi. 2018. "The State of New Keynesian Economics: A Partial Assessment." Journal of Economic Perspectives, 32 (3): 87–112. DOI: 10.1257/jep.32.3.87Additional Materials
JEL Classification
- D11 Consumer Economics: Theory
- E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian
- E31 Price Level; Inflation; Deflation
- E32 Business Fluctuations; Cycles
- E52 Monetary Policy
- E62 Fiscal Policy
- G01 Financial Crises
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