In standard solutions, the new-Keynesian model produces a deep recession with deflation in a liquidity trap. Useless government spending, technical regress, and capital destruction have large positive multipliers. The recession, deflation and policy paradoxes are larger when prices are less sticky. I show that these features are all artifacts of equilibrium selection. For the same interest-rate...

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...

We survey literature comparing in‡ation targeting (IT) and price-level targeting (PT) as macroeconomic stabilisation policies. Our focus is on New Keynesian models and areas that have seen signi…cant developments since Ambler’s (2009) survey: optimal monetary policy; the zero lower bound; …nancial frictions; and transition costs of adopting a PT regime. Ambler’s conclusion that PT improves soci...

This paper presents a framework for analyzing how bounded rationality a↵ects monetary and fiscal policy. The model is a tractable and parsimonious enrichment of the widely-used New Keynesian model – with one main new parameter, which quantifies how poorly agents understand future policy and its impact. That myopia parameter, in turn, a↵ects the power of monetary and fiscal policy in a microfoun...

a r t i c l e i n f o I propose a new multi-factor asset pricing model with new-Keynesian factors to explain stock return anomalies from 1972Q1 to 2009Q2. This new model explains the average returns across testing portfolios formed on financial distress, momentum, and standardized unexpected earnings with misspecification-robust statistics. Test portfolios formed on net stock issues and total a...

I begin by setting out the core of Post Keynesian macroeconomics, and then distinguish three schools within Post Keynesian theory: the fundamentalist Keynesian approach taken by Paul Davidson, the Kaleckian variant represented by Eckhard Hein, and Hyman Minsky’s financial instability hypothesis. I continue by identifying what Post Keynesian macroeconomics is not, and outlining some very substan...