A Macroeconomics Reader

By Brian Snowdon; Howard R. Vane | Go to book overview

21

What is new-Keynesian economics?

Robert J. Gordon

Journal of Economic Literature (1990) 28, September, pp. 1115-71


1 INTRODUCTION

Background

In the late 1970s it appeared that the US macroeconomic landscape was being swept by a new-classical tide, and that Keynesian economics had become an isolated backwater. In fact there is still a widespread impression that the best and brightest young macroeconomists almost uniformly marched under the new-classical banner as the decade of the 1980s began. 1 Yet it is now apparent that the rumours of the death of Keynesian economics were greatly exaggerated. Building on foundations laid in the late 1970s by Stanley Fischer (1977a) and Edmund Phelps and John Taylor (1977), a large number of authors, young and middle-aged alike, since the late 1970s have produced an outpouring of research within the Keynesian tradition that attempts to build the microeconomic foundations of wage and price stickiness. The adjective new-Keynesian nicely juxtaposes this body of research with its arch-opposite, the new-classical approach. 2

This chapter extracts the essential elements of new-Keynesian economics for an audience of professional economists who are not specialists in the microeconomic foundations of macroeconomics. There is no intention to survey comprehensively every notable paper in the field, but rather to sift the literature for the most important ideas and themes. One commentator has asserted that the new-Keynesian literature has provided too many explanations of wage and price stickiness, and so we apply tough standards to the major contributions, asking whether they make an essential contribution to an understanding of the adjustment of wages and prices. In short, our intent is to ask what is new and what is convincing in the large literature that collectively has become known as the new Keynesian economics.


Main themes

Like its precursor a decade previously (R. Gordon 1981), this chapter differs from conventional surveys not just in its intent to sift and criticize

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