New Keynesian economics is a school of contemporary macroeconomics that strives to provide microeconomic foundations for Keynesian economics. It developed partly as a response to criticisms of Keynesian macroeconomics by adherents of New Classical macroeconomics.
Two main assumptions define the New Keynesian approach to macroeconomics. Like the New Classical approach, New Keynesian macroeconomic analysis usually assumes that households and firms have rational expectations. But the two schools differ in that New Keynesian analysis usually assumes a variety of market failures. In particular, New Keynesians assume that there is imperfect competition in price and wage setting to help explain why prices and wages can become "sticky", which means they do not adjust instantaneously to changes in economic conditions.
Wage and price stickiness, and the other market failures present in New Keynesian models, imply that the economy may fail to attain full employment. Therefore, New Keynesians argue that macroeconomic stabilization by the government (using fiscal policy) or by the central bank (using monetary policy) can lead to a more efficient macroeconomic outcome than a laissez faire policy would.
Read more about New Keynesian Economics: Origins, Microfoundations of Price Stickiness, Other Microeconomic Ingredients, New Keynesian DSGE Models, Policy Implications, Relation To Other Macroeconomic Schools
Other articles related to "new keynesian economics, keynesian, economics, keynesian economics, economic, new keynesians":
... Through the 1980s Keynesian macro-economics fell out of fashion as a policy tool, and as a field of study ... Instead it was felt that combining economics with behavioral science, game theory and monetary theory were more important areas of study ... However, beginning in the late 1980s economics began shifting back to a study of macro-economics, and policy makers began to look for means of managing the global financial ...
... used the term neoclassical synthesis to refer to the integration of Keynesian economics with neoclassical economics ... Davidson, which emphasizes the role of fundamental uncertainty in economic life, especially concerning issues of private fixed investment ... The New Keynesians use "microfoundations" to demonstrate that price stickiness hinders markets from clearing ...
Famous quotes containing the word economics:
“Religion and art spring from the same root and are close kin. Economics and art are strangers.”
—Willa Cather (18761947)