Notes for a New Guide to Keynes (I): Wages, Aggregate Demand, and Employment

  • Authors: Jordi Galí.
  • BSE Working Paper: 110147 | September 15
  • Keywords: monetary policy rules , wage flexibility , employment stability
  • JEL codes: E32
  • monetary policy rules
  • wage flexibility
  • employment stability
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Abstract

I revisit the General Theory’s discussion of the role of wages in employment determination through the lens of the New Keynesian model. The analysis points to the key role played by the monetary policy rule in shaping the link between wages and employment, and in determining the welfare impact of enhanced wage flexibility. I show that the latter is not always welfare improving.

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