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Monetary Policy, Inflation, and the Business Cycle:
An Introduction to the New Keynesian Framework and Its Applications
Second Edition
Jordi Galí

Hardcover | 2015 | $69.50 | £51.95 | ISBN: 9780691164786
296 pp. | 6 x 9 | 14 line illus. 4 tables.
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This revised second edition of Monetary Policy, Inflation, and the Business Cycle provides a rigorous graduate-level introduction to the New Keynesian framework and its applications to monetary policy. The New Keynesian framework is the workhorse for the analysis of monetary policy and its implications for inflation, economic fluctuations, and welfare. A backbone of the new generation of medium-scale models under development at major central banks and international policy institutions, the framework provides the theoretical underpinnings for the price stability–oriented strategies adopted by most central banks in the industrialized world.

Using a canonical version of the New Keynesian model as a reference, Jordi Galí explores various issues pertaining to monetary policy’s design, including optimal monetary policy and the desirability of simple policy rules. He analyzes several extensions of the baseline model, allowing for cost-push shocks, nominal wage rigidities, and open economy factors. In each case, the effects on monetary policy are addressed, with emphasis on the desirability of inflation-targeting policies. New material includes the zero lower bound on nominal interest rates and an analysis of unemployment’s significance for monetary policy.

  • The most up-to-date introduction to the New Keynesian framework available
  • A single benchmark model used throughout
  • New materials and exercises included
  • An ideal resource for graduate students, researchers, and market analysts

Jordi Galí is director and senior researcher at the Center for Research in International Economics (CREI). He is professor of economics at Pompeu Fabra University in Barcelona and research professor at the Barcelona Graduate School of Economics.


Praise for the previous edition: "A state-of-the-art treatment of the emerging New Keynesian synthesis by one of the leaders in the field, Galí’s book is a must-read for the next generation of macroeconomists."--N. Gregory Mankiw, Harvard University

Praise for the previous edition: "Authoritative. This book will be very useful to graduate students and to others seeking an introduction to modern work in this area."--Michael Woodford, Columbia University

Praise for the previous edition: "This is a wonderfully elegant and accessible introduction to the contemporary New Keynesian paradigm, written by one of the leading experts in the field. This monograph presents what one should know in a clean, cogent, and concise manner. I fully expect it to become a standard reference for both students and researchers in the field."--Mark Gertler, New York University

Praise for the previous edition: "Jordi Galí provides an authoritative overview of the research that revolutionized monetary economics during the past decade, by embedding sticky prices in a coherent dynamic general equilibrium framework--thus providing a novel and much clearer positive and normative analysis of monetary policy. The presentation is elegant and intuitive, yet rigorous. The book will be a standard reference for graduate students, researchers, and policymakers. It is also highly recommended as a textbook for money/macro courses. Numerous useful exercises are provided."--Robert Kollmann, European Center for Advanced Research in Economics and Statistics, Free University of Brussels

Praise for the previous edition: "This book provides an excellent introduction and exegesis of the New Keynesian model that is the current state of the art in the analysis of monetary policy. It will find a large audience with research economists, graduate students, and staffers in central banks around the world."--Philip R. Lane, Trinity College Dublin

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Table of Contents:

Preface ix
CHAPTER 1 Introduction 1
CHAPTER 2 A Classical Monetary Model 17
CHAPTER 3 The Basic New Keynesian Model 52
CHAPTER 4 Monetary Policy Design in the Basic New Keynesian Model 98
CHAPTER 5 Monetary Policy Tradeoffs: Discretion versus Commitment 126
CHAPTER 6 A Model with Sticky Wages and Prices 163
CHAPTER 7 Unemployment in the New Keynesian Model 199
CHAPTER 8 Monetary Policy in the Open Economy 223
CHAPTER 9 Lessons, Extensions, and New Directions 261
Index 271

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