Comments on “Credit Frictions and Optimal Monetary Policy”, by Cúrdia and Woodford∗

Let me first briefly place it in the broader context of current macroeconomic research. First-generation new-Keynesian models, of the type analyzed by Woodford in his well-known book (2003), were based on a few central imperfections, namely monopolistic competition to allow for non-trivial market power and price setting, and nominal rigidities; their purpose was to show how shifts in demand could indeed affect output, and study the basic role of policy in that context. It was clear however that these models missed many of the imperfections central to macro. Thus, second-generation new-Keynesian models are focusing on the implications of additional imperfections, be it in labor markets, goods markets, financial markets, and credit markets. CW is likely to become one of the standard references for credit market imperfections.