New Keynesian Macro Dynamics

Orlando Gomes

Chapter Chapter 7 in Intertemporal and Strategic Modelling in Economics, 2022, pp 155-181 from Springer

Abstract: Abstract The new Keynesian macro model is, currently, the most widely accepted interpretation of the macroeconomy in the short run, an interpretation that allows for exploring some of the inefficiencies that generate and perpetuate business fluctuations. In this chapter, such interpretation is explored, first by looking at the behavior of representative agents on the demand and supply sides, and then by deriving aggregate relations (fundamentally, an IS curve and a Phillips curve) that synthesize macro behavior. In the new Keynesian macro model, monetary policy plays a central role, which is also dissected in this chapter. Some features that do not belong to the original model but add value to the explanation provided by the new Keynesian framework are discussed as well (sticky information and agent heterogeneity).

Date: 2022
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DOI: 10.1007/978-3-031-09600-6_7

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