Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework and Its Applications - Second Edition - Hardcover

Galí, Jordi

Hardcover

ISBN 10: 0691164789 ISBN 13: 9780691164786

Verlag: Princeton Univers. Press, 2015

Inhaltsangabe

The classic introduction to the New Keynesian economic model This revised second edition of Monetary Policy, Inflation, and the Business Cycle provides a rigorous graduate-level introduction to the New Keynesian framework and its applications to monetary policy. The New Keynesian framework is the workhorse for the analysis of monetary policy and its implications for inflation, economic fluctuations, and welfare. A backbone of the new generation of medium-scale models under development at major central banks and international policy institutions, the framework provides the theoretical underpinnings for the price stability-oriented strategies adopted by most central banks in the industrialized world. Using a canonical version of the New Keynesian model as a reference, Jordi Galí explores various issues pertaining to monetary policy's design, including optimal monetary policy and the desirability of simple policy rules. He analyzes several extensions of the baseline model, allowing for cost-push shocks, nominal wage rigidities, and open economy factors. In each case, the effects on monetary policy are addressed, with emphasis on the desirability of inflation-targeting policies. New material includes the zero lower bound on nominal interest rates and an analysis of unemployment's significance for monetary policy.The most up-to-date introduction to the New Keynesian framework available A single benchmark model used throughout New materials and exercises included An ideal resource for graduate students, researchers, and market analysts

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Über die Autorin bzw. den Autor

Jordi Galí is director and senior researcher at the Center for Research in International Economics (CREI). He is professor of economics at Pompeu Fabra University in Barcelona and research professor at the Barcelona Graduate School of Economics.

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Praise for the previous edition: "Jordi Galí provides an authoritative overview of the research that revolutionized monetary economics during the past decade, by embedding sticky prices in a coherent dynamic general equilibrium framework--thus providing a novel and much clearer positive and normative analysis of monetary policy. The presentation is elegant and intuitive, yet rigorous. The book will be a standard reference for graduate students, researchers, and policymakers. It is also highly recommended as a textbook for money/macro courses. Numerous useful exercises are provided."--Robert Kollmann, European Center for Advanced Research in Economics and Statistics, Free University of Brussels

Praise for the previous edition: "A state-of-the-art treatment of the emerging New Keynesian synthesis by one of the leaders in the field, Galí's book is a must-read for the next generation of macroeconomists."--N. Gregory Mankiw, Harvard University

Praise for the previous edition: "This is a wonderfully elegant and accessible introduction to the contemporary New Keynesian paradigm, written by one of the leading experts in the field. This monograph presents what one should know in a clean, cogent, and concise manner. I fully expect it to become a standard reference for both students and researchers in the field."--Mark Gertler, New York University

Praise for the previous edition: "This book provides an excellent introduction and exegesis of the New Keynesian model that is the current state of the art in the analysis of monetary policy. It will find a large audience with research economists, graduate students, and staffers in central banks around the world."--Philip R. Lane, Trinity College Dublin

Praise for the previous edition: "Systematic and concise. This is a fine book that is likely to become the key basic text for graduate courses on monetary policy."--Seppo Honkapohja, University of Cambridge

Praise for the previous edition: "Authoritative. This book will be very useful to graduate students and to others seeking an introduction to modern work in this area."--Michael Woodford, Columbia University

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Praise for the previous edition: "Jordi Gali provides an authoritative overview of the research that revolutionized monetary economics during the past decade, by embedding sticky prices in a coherent dynamic general equilibrium framework--thus providing a novel and much clearer positive and normative analysis of monetary policy. The presentation is elegant and intuitive, yet rigorous. The book will be a standard reference for graduate students, researchers, and policymakers. It is also highly recommended as a textbook for money/macro courses. Numerous useful exercises are provided."--Robert Kollmann, European Center for Advanced Research in Economics and Statistics, Free University of Brussels

Praise for the previous edition: "A state-of-the-art treatment of the emerging New Keynesian synthesis by one of the leaders in the field, Gali's book is a must-read for the next generation of macroeconomists."--N. Gregory Mankiw, Harvard University

Praise for the previous edition: "This is a wonderfully elegant and accessible introduction to the contemporary New Keynesian paradigm, written by one of the leading experts in the field. This monograph presents what one should know in a clean, cogent, and concise manner. I fully expect it to become a standard reference for both students and researchers in the field."--Mark Gertler, New York University

Praise for the previous edition: "This book provides an excellent introduction and exegesis of the New Keynesian model that is the current state of the art in the analysis of monetary policy. It will find a large audience with research economists, graduate students, and staffers in central banks around the world."--Philip R. Lane, Trinity College Dublin

Praise for the previous edition: "Systematic and concise. This is a fine book that is likely to become the key basic text for graduate courses on monetary policy."--Seppo Honkapohja, University of Cambridge

Praise for the previous edition: "Authoritative. This book will be very useful to graduate students and to others seeking an introduction to modern work in this area."--Michael Woodford, Columbia University"

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Monetary Policy, Inflation, and the Business Cycle

An Introduction to the New Keynesian Framework and its Applications

By Jordi Gali

PRINCETON UNIVERSITY PRESS

Copyright © 2015 Princeton University Press
All rights reserved.

ISBN: 978-0-691-16478-6

Contents

Preface, ix, 
Chapter 1 Introduction, 1, 
Chapter 2 A Classical Monetary Model, 17, 
Chapter 3 The Basic New Keynesian Model, 52, 
Chapter 4 Monetary Policy Design in the Basic New Keynesian Model, 98, 
Chapter 5 Monetary Policy Tradeoffs: Discretion versus Commitment, 126, 
Chapter 6 A Model with Sticky Wages and Prices, 163, 
Chapter 7 Unemployment in the New Keynesian Model, 199, 
Chapter 8 Monetary Policy in the Open Economy, 223, 
Chapter 9 Lessons, Extensions, and New Directions, 261, 
Index, 271, 

CHAPTER 1

INTRODUCTION

Over the past two decades, monetary economics has been among the most fruitful research areas within macroeconomics. The efforts of many researchers to understand the relationship among monetary policy, inflation, and the business cycle have led to the development of a framework—the so called New Keynesian model—that is widely used for monetary policy analysis. The present monograph offers an overview of that framework and a discussion of its policy implications.

The need for a framework that can help us understand the links between monetary policy and the aggregate performance of an economy seems self-evident. On the one hand, and in their condition as consumers, workers, or investors, citizens of modern societies have good reason to care about developments in inflation, employment, and other economywide variables, for those developments affect to an important degree their opportunities to maintain or improve their standard of living. On the other hand, monetary policy has an important role in shaping those macroeconomic developments, both at the national and supranational levels. Changes in interest rates have an influence on the valuation of financial assets and their expected returns, as well as on the consumption and investment decisions of households and firms. Those decisions can in turn have consequences for GDP growth, employment, and inflation. It is thus not surprising that the interest rate decisions made by the Fed, the ECB, or other prominent central banks around the world are given so much attention, not only by market analysts and the financial press, but also by the general public. It would thus seem important to understand how those interest rate decisions end up affecting the various measures of an economy's performance, both nominal and real. A key goal of monetary theory is to provide us with an account of the mechanisms through which those effects arise, that is, the transmission mechanism of monetary policy.

Central banks do not change interest rates in an arbitrary or whimsical manner. Their decisions are meant to be purposeful, that is, they seek to attain certain objectives, while taking as given the constraints posed by the workings of a market economy, in which the vast majority of economic decisions are made in a decentralized manner by a large number of individuals and firms. Understanding what should be the objectives of monetary policy and how the latter should be conducted in order to attain those objectives constitutes another important aim of modern monetary theory, in its normative dimension.

The following chapters present a framework that helps us understand both the transmission mechanism of monetary policy and the elements that come into play in the design of rules or guidelines for the conduct of monetary policy. The framework presented is, admittedly, highly stylized and should be viewed more as a pedagogical tool than a quantitative model that can be readily taken to the data. Nevertheless, and despite its simplicity, it contains the key elements (though not all the bells and whistles) found in the models being developed and used at central banks and other policy institutions.

The monetary framework that constitutes the focus of the present monograph has a core structure that corresponds to a Real Business Cycle (RBC) model, on which a number of "Keynesian features" are superimposed. Each of those two influences is briefly described next, in order to provide some historical background to the framework developed in subsequent chapters.

1.1 Background: Real Business Cycle Theory and Classical Monetary Models

During the years following the seminal papers of Kydland and Prescott (1982) and Prescott (1986), Real Business Cycle (RBC) theory provided the main reference framework for the analysis of economic fluctuations, and became to a large extent the core of macroeconomics. The impact of the RBC revolution had both a methodological and a conceptual dimension.

From a methodological point of view, RBC theory established firmly the use of dynamic stochastic general equilibrium (DSGE) models as a central tool for macroeconomic analysis. Behavioral equations describing aggregate variables were thus replaced by first order conditions of intertemporal problems facing consumers and firms. Ad hoc assumptions on the formation of expectations gave way to rational expectations. In addition, RBC economists stressed the importance of the quantitative aspects of modeling, as reflected in the central role given to the calibration, simulation, and evaluation of their models.

The most striking dimension of the RBC revolution was, however, conceptual. It rested on three basic claims:

• The efficiency of business cycles. Thus, the bulk of economic fluctuations observed in industrialized countries could be interpreted as an equilibrium outcome resulting from the economy's response to exogenous variations in real forces (most importantly, technology), in an environment characterized by perfect competition and frictionless markets. According to that view, cyclical fluctuations did not necessarily signal an inefficient allocation of resources (in fact, the fluctuations generated by the standard RBC model were fully optimal). That view had an important corollary: stabilization policies may not be necessary or desirable, and they could even be counterproductive. This was in contrast with the conventional interpretation, tracing back to Keynes (1936), of recessions as periods with an inefficiently low utilization of resources, which could be brought to an end by means of economic policies aimed at expanding aggregate demand.

• The importance of technology shocks as a source of economic fluctuations. That claim derived from the ability of the basic RBC model to generate "realistic" fluctuations in output and other macroeconomic variables, even when variations in total factor productivity—calibrated to match the properties of the Solow residual—are assumed to be the only exogenous driving force. Such an interpretation of economic fluctuations was in stark contrast with the traditional view of technological change as a source of long-term growth, unrelated to business cycles.

• The limited role of monetary factors. Most importantly, given the subject of the present monograph, RBC theory sought to explain economic fluctuations with no reference to monetary factors, even abstracting from the existence of a monetary sector.

Its strong influence among academic researchers notwithstanding, the RBC approach had a very limited impact (if any) on central banks and other policy institutions. The latter continued to rely on large-scale macroeconometric...

Details zur Ausgabe

• Verlag: Princeton Univers. Press
• Erscheinungsdatum: 2015
• Sprache: Englisch
• ISBN 10: 0691164789
• ISBN 13: 9780691164786
• Einband: Gebundene Ausgabe
• Auflage: 2
• Anzahl der Seiten: 296
• Kontakt zum Hersteller: preigu GmbH & Co. KG; mail@preigu.de; ; Lengericher Landstr. 19; Osnabrück; Niedersachsen; 49078; Deutschland