publication . Article . 2012

The New Keynesian Approach to Business Cycle Theory: Nominal and Real Rigidities

Monica Dobrescu;
Open Access
  • Published: 01 Jan 2012 Journal: International Journal of Economic Practices and Theories, volume 2, issue 1 January, pages 13-22
At the heart of the Neoclassical synthesis lies the assumption that prices do not adjust instantly to equilibrate supply and demand. Under these circumstances, once the synthesis failed, economists naturally started to investigate whether the imperfect adjustment of prices could be logically inferred from realistic assumptions regarding the microeconomic environment, and subsequent research led to a variety of new non-walrasian theories regarding the functioning of markets. Thus, the non-walrasian analyses of the labour market suggested that wages could perform other functions than to equilibrate labour supply and demand. For instance, in models focused on labou...
free text keywords: nominal rigidities, real rigidities, menu costs, efficiency wages, near rationality., jel:E30, jel:E31, jel:E32
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