Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework

The New Keynesian framework has emerged as the workhorse for the analysis of monetary policy and its implications for inflation, economic fluctuations, and welfare. It is the backbone of the new generation of medium-scale models under development at major central banks and international policy institutions, and provides the theoretical underpinnings of the inflation stability-oriented strategies adopted by most central banks throughout the industrialized world. This graduate-level textbook provides an introduction to the New Keynesian framework and its applications to monetary policy.

Using a canonical version of the New Keynesian model as a reference framework, Jordi Galí explores issues pertaining to the design of monetary policy, including the determination of the 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 implications for monetary policy are addressed, with a special emphasis on the desirability of inflation targeting policies.

• The most up-to-date and accessible introduction to the New Keynesian framework available
  
• Uses a single benchmark model throughout
  
• Concise and easy to use
  
• Includes exercises
  
• An ideal resource for graduate students, researchers, and market analysts
  

"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

"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

"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

"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

"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

"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