The New Keynesian Approach to Monetary Policy Analysis: Lessons and New Directions

18 Pages Posted: 19 Mar 2008

See all articles by Jordi Galí

Jordi Galí

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: February 6, 2008

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 benefits of price stability, the gains from commitment about future policies, the importance of natural variables as benchmarks for policy, and the benefits 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

JEL Classification: E52

Suggested Citation

Gali, Jordi, The New Keynesian Approach to Monetary Policy Analysis: Lessons and New Directions (February 6, 2008). Available at SSRN: https://ssrn.com/abstract=1107813 or http://dx.doi.org/10.2139/ssrn.1107813

Jordi Gali (Contact Author)

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )

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Barcelona, 08005
Spain
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+34 93 542 1746 (Fax)

HOME PAGE: http://www.econ.upf.es/~gali

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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United Kingdom

National Bureau of Economic Research (NBER)

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