Monetary Policy, In
Monetary Policy, Inflation, and the Business Cycle
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Monetary Policy, Inflation, and the Business Cycle
An Introduction to the New Keynesian Framework
Jordi Galí
Princeton University Press Princeton and Oxford
Copyright © 2008 by Princeton University Press Published by Princeton University Press, 41 William Street, Princeton, New Jersey 08540 In the United Kingdom: Princeton University Press, 6 Oxford Street, Woodstock, Oxfordshire OX20 1TW All Rights Reserved Library of Congress Cataloging-in-Publication Data Galí, Jordi, 1961– Monetary policy, inflation, and the business cycle : an introduction to the New Keynesian framework / Jordi Galí. p. cm. Includes bibliographical references and index. ISBN 978-0-691-13316-4 (hbk. : alk. paper) 1. Monetary policy. 2. Inflation (Finance). 3. Business cycles. 4. Keynesian economics. I. Title. HG230.3.G35 2008 339.5 '3—dc22 2007044381 British Library Cataloging-in-Publication Data is available This book has been composed in Times Roman by Westchester Book Group. Printed on acid-free paper. ∞ press.princeton.edu Printed in the United States of America 10 9 8 7 6 5 4 3 2 1
Als meus pares
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Contents
Preface 1 Introduction 2 A Classical Monetary Model 3 The Basic New Keynesian Model 4 Monetary Policy Design in the Basic New Keynesian Model 5 Monetary Policy Tradeoffs: Discretion versus Commitment 6 A Model with Sticky Wages and Prices 7 Monetary Policy and the Open Economy 8 Main Lessons and Some Extensions Index
ix 1 15 41 71 95 119 149 185 195
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Preface
This book brings together some of the lecture notes that I have developed over the past few years, and which have been the basis for graduate courses on monetary economics taught at different institutions, including Universitat Pompeu Fabra (UPF), Massachusetts Institute of Technology (MIT), and the Swiss Doctoral Program at Gerzensee. The book’s main objective is
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Monetary Policy, Inflation, and the Business Cycle
An Introduction to the New Keynesian Framework
Jordi Galí
Princeton University Press Princeton and Oxford
Copyright © 2008 by Princeton University Press Published by Princeton University Press, 41 William Street, Princeton, New Jersey 08540 In the United Kingdom: Princeton University Press, 6 Oxford Street, Woodstock, Oxfordshire OX20 1TW All Rights Reserved Library of Congress Cataloging-in-Publication Data Galí, Jordi, 1961– Monetary policy, inflation, and the business cycle : an introduction to the New Keynesian framework / Jordi Galí. p. cm. Includes bibliographical references and index. ISBN 978-0-691-13316-4 (hbk. : alk. paper) 1. Monetary policy. 2. Inflation (Finance). 3. Business cycles. 4. Keynesian economics. I. Title. HG230.3.G35 2008 339.5 '3—dc22 2007044381 British Library Cataloging-in-Publication Data is available This book has been composed in Times Roman by Westchester Book Group. Printed on acid-free paper. ∞ press.princeton.edu Printed in the United States of America 10 9 8 7 6 5 4 3 2 1
Als meus pares
This page intentionally left blank
Contents
Preface 1 Introduction 2 A Classical Monetary Model 3 The Basic New Keynesian Model 4 Monetary Policy Design in the Basic New Keynesian Model 5 Monetary Policy Tradeoffs: Discretion versus Commitment 6 A Model with Sticky Wages and Prices 7 Monetary Policy and the Open Economy 8 Main Lessons and Some Extensions Index
ix 1 15 41 71 95 119 149 185 195
This page intentionally left blank
Preface
This book brings together some of the lecture notes that I have developed over the past few years, and which have been the basis for graduate courses on monetary economics taught at different institutions, including Universitat Pompeu Fabra (UPF), Massachusetts Institute of Technology (MIT), and the Swiss Doctoral Program at Gerzensee. The book’s main objective is
References: 193 Orphanides, Athanasios, and John Williams (2005): “Imperfect Knowledge, Inflation Expectations and Monetary Policy,” in B