The state of New Keynesian Economics
Jordi Galí in this paper reviews recent developments in New Keynesian economics. In particular, he discusses the implications of the zero lower bound on nominal interest rates and the interaction of monetary policy and household heterogeneity. He concludes:
[…]it is hard to think of an alternative macroeconomic paradigm that would do away with the two defining features of the New Keynesian model: nominal rigidities and monetary non-neutralities.
The State of New Keynesian Economics: A Partial Assessment
Author: Jordi Galí
From: Universitat Pompeu Fabra
DSGE challenges
Quantitative DSGE models were meant to rise to the Lucas challenge of constructing general equilibrium models with deep parameters. Now, workhorse models for monetary policy analysis. But:
◮ Asset prices and yield spreads. Probably central for monetary policy. Typically ignored or trivialized in QDSGEs.
◮ Financial frictions. Much progress has been made. But contracts are often not privately optimal. Perhaps they should be.
◮ Inflation. Data: no Phillips-Curve tradeoff. QDSGE: don’t account for inflation with monetary policy shocks.
◮ Neo-Fisherian features of New Keynesian models. Substantial, but get swept under the rug.
The glass is half full. Or half empty. Take your pick.
Some DSGE Challenges
Author: Harald Uhlig
From: University of Chicago
