PSL Quarterly Review (Dec 2004)
New directions in stabilisation policies
Abstract
Recently, a new class of macroeconomic business cycle models has emerged. Stochastic dynamic general equilibrium models with rational expectations originally employed by RBC researchers are combined with nominal rigidities and imperfect competition traditionally highlighted by New Keynesian economists. This class of models leads to a new paradigm in business cycle theory and stabilization policies. The paper presents the main characteristics and implications of the new class of models in a predominantly non-technical way. In order to highlight the progress connected with the new class of models, it puts them into the context of former debates on stabilization policy, such as the Phillips curve dispute.
