The new Keynesian approach to monetary policy analysis: Lessons and new directions

Jordi Galí

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: I discuss several lessons regarding the design and conduct of monetary policy that have emerged out of the New Keynesian research program. Those lessons include the bene.ts of price stability, the gains from commitment about future policies, the importance of nat- ural variables as benchmarks for policy, and the bene.ts of a credible anti-inflationary stance. I also point to one challenge facing NK modelling efforts: the need to come up with relevant sources of policy tradeoffs. A potentially useful approach to meeting that challenge, based on the introduction of real imperfections, is presented.

Keywords: Sticky prices; optimal policy; interest rate rules; policy tradeoffs; credibility; gains from commitment (search for similar items in EconPapers)
JEL-codes: E52 (search for similar items in EconPapers)
Date: 2008-02
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Citations: View citations in EconPapers (4)

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