new Keynesian macroeconomics

Abstract

The term ‘new Keynesian economics’ refers to a body of work done by macroeconomists in the late 1970s and 1980s in which the notion of imperfect competition was introduced into macroeconomics in order to provide a micro-foundation for nominal rigidities and also to provide an alternative to supply-equals-demand equilibrium. This led in the 1990s to the new-neoclassical-synthesis approach to monetary economics in which dynamic pricing models have become central to our understanding how monetary policy influences output and inflation. Other themes in the new Keynesian approach include the effect of imperfect competition on the fiscal multiplier, and coordination failures