The New Keynesian Microfoundations of Macroeconomics

Peter Spahn

No 317/2009, Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim from Department of Economics, University of Hohenheim, Germany

Abstract: New Keynesian Macroeconomics (NKM) obeys to the new dogma that macroeconomics should be firmly grounded in First Principles of micro theory. Households are assumed to run an intertemporal optimization calculus with respect to leisure and consumption by making use of perfect financial markets. The supply side is organized so that full employment prevails. Macroeconomic coordination problems between saving and investment are absent. In order to make model predictions more compatible with empirical facts, NKM chooses "ad hoc" microfoundations: utility functions and market structures are designed arbitrarily to allow for persistence of macro variables. NKM's reduced hybrid macro model, with lags and expectational leads, is a useful "work horse", compatible with various micro reasoning. However, NKM's insistence on the representative agent obstructs an understanding of heterogeneous beliefs and learning.

Keywords: Representative Agent; Ramsey Saving; Calvo Pricing; Sticky Information; Rational Expectations; Heterogeneous Beliefs (search for similar items in EconPapers)
JEL-codes: B22 E12 E2 E3 E44 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2009-08
New Economics Papers: this item is included in nep-cba, nep-cbe and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: The New Keynesian Microfoundation of Macroeconomics (2009)
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