The past fifteen years have witnessed the rise of the New Keynesian model                  as a framework of reference for the analysis of fluctuations and stabilization                  policies. That framework, which combines the rigor and internal consistency of                  dynamic general equilibrium models with such typically Keynesian assumptions as                  monopolistic competition and nominal rigidities, makes possible a meaningful,                  welfare-based analysis of the effects of monetary policy rules. But the conspicuous                  absence of unemployment from the standard New Keynesian model has given rise to both                  criticism and attempts to rectify this anomaly. In this book, Jordi Gal?, one of the                  major contributors to the New Keynesian literature, offers a new approach to                  introducing unemployment into that framework. Gal?'s approach involves a                  reinterpretation of the labor market in the standard New Keynesian model with                  staggered wage setting (rather than a modification or extension of the model, as has                  been proposed by others). The resulting framework preserves the convenience of the                  representative household paradigm and allows one to determine the equilibrium levels                  of employment, the labor force, and hence the unemployment rate conditional on the                  monetary policy in place. Gal? develops the basic model, embedding it in a standard                  New Keynesian framework with staggered price and wage setting; revisits the                  relationship between economic fluctuations and efficiency through the lens of the                  new model, developing a measure of the output gap; and analyzes the relation between                  unemployment and the design of monetary policy.

Unemployment Fluctuations and Stabilization Policies: A New Keynesian Perspective (Zeuthen Lectures) PDF

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