Looking for the microfoundations : nominal rigidities and the New Keynesian economics

Abstract

This paper presents a critical description of the most influential New-Keynesian models with nominal rigidities. The study aims to elucidate the concept of long-term contracts, small menu costs, and near-rationality. Since this approach avoids the formulation of market clearing price, the early New-Keynesian models are incomparable to those developed by New Classical Economy. Hence, the New Keynesian economics, contrary to the common interpretation, is unable to challenge its adversaries. (original abstract)