I provide an outline of how a modern theory of search, modelled by a two-sided matching function, can be used to form a microfoundation to Keynesian economics. This search theory of the labor market has one less equation than unknown and, when combined with the idea that investment is driven exogenously by ‘animal spirits,’ the marriage leads to a microfounded theory of business cycles. This al...

Among mainstream academic economists and policymakers, the leading alternative to the real business cycle theory is the New Keynesian model. Whereas the real business cycle model features monetary neutrality and emphasizes that there should be no active stabilization policy by governments, the New Keynesian model builds in a friction that generates monetary non-neutrality and gives rise to a we...

depending on the assumptions that are made in new keynesian models, one can attain different new keynesian phillips curves. in this study, three different new keynesian phillips curves and two different central bank behavioural functions are presented which leaves six new keynesian dsge models to study. the purpose of this study is the comparison of these six models and selecting the best model...

The possibility of the so called "non-Keynesian" was illustrated by several fiscal episodes in Europe during the last two decades, giving rise to a growing body of both theoretical and empirical literature. The purpose of this paper is twofold. First, a simple two period model for private consumption is presented in order to explain the possibility of both Keynesian and non-Keynesian effects of...

In this paper, several flaws of the basic no-capital/labor-only New Keynesian model, as in Gaĺı (2008), are discussed. Some flaws were left undiscovered because mass of varieties n in Dixit-Stiglitz aggregator is often considered as not affecting overall outcomes. Only when n = 1 would ordinary results of the basic New Keynesian model hold. To save the theory, we consider the case where product...

A simple model of monetary/labor search is constructed to exposit and evaluate Keynesian ideas. In the model, economic agents have trouble splitting the surplus from exchange appropriately, and we consider monetary and fiscal policies that correct this Keynesian inefficiency. With either fixed nominal wages and prices, or indeterminacy in rates of exchange, the optimal policies we explore seem ...

We consider a multi--sector overlapping generations model with imperfectly competitive firms in the output markets and wage setting trade unions in the labour markets. A coordination problem between firms creates multiple temporary equilibria which are either Walrasian or of the Keynesian unemployment type. There exist many deterministic and stochastic equilibrium cycles fluctuating between Key...