Development economics new keynesian growth models

A very specific and technical topic!

New Keynesian growth models are a class of macroeconomic models that combine elements of New Keynesian economics with growth theory. They aim to explain the dynamics of economic growth, innovation, and technological progress in a world where prices and wages are sticky, and where there are frictions in the labor and goods markets.

Here are some key features of New Keynesian growth models:

  1. Disequilibrium dynamics: New Keynesian growth models assume that the economy is often in a state of disequilibrium, meaning that the actual output and employment levels differ from the desired levels. This is due to the presence of sticky prices and wages, which prevent the economy from adjusting quickly to changes in demand and supply.
  2. Monetary policy: New Keynesian growth models emphasize the role of monetary policy in stabilizing the economy and promoting growth. The central bank uses interest rates and other tools to influence aggregate demand and stabilize the economy.
  3. Innovation and technological progress: New Keynesian growth models incorporate elements of endogenous growth theory, which emphasizes the role of innovation and technological progress in driving economic growth. Firms invest in research and development to create new products and processes, which increases productivity and growth.
  4. Human capital: New Keynesian growth models also emphasize the importance of human capital, such as education and training, in driving economic growth. Investments in human capital can increase productivity and growth by improving the skills and abilities of workers.
  5. Frictions and imperfections: New Keynesian growth models incorporate frictions and imperfections in the labor and goods markets, such as search and matching frictions, to explain the persistence of unemployment and the business cycle.

Some of the key models in this area include:

  1. The New Keynesian Growth Model of Jones (1995): This model combines elements of New Keynesian economics with the growth theory of Romer (1986). It assumes that firms invest in research and development to create new products and processes, which increases productivity and growth.
  2. The New Keynesian Growth Model of Aghion and Howitt (1998): This model incorporates elements of endogenous growth theory and assumes that firms invest in research and development to create new products and processes. It also includes a role for monetary policy in stabilizing the economy.
  3. The New Keynesian Growth Model of Galor and Moav (2004): This model combines elements of New Keynesian economics with the growth theory of Galor and Weil (1996). It assumes that human capital, such as education and training, plays a key role in driving economic growth.

Some of the key applications of New Keynesian growth models include:

  1. Understanding the business cycle: New Keynesian growth models can help explain the persistence of unemployment and the business cycle, which is a key challenge for macroeconomic policy.
  2. Designing monetary policy: New Keynesian growth models can inform the design of monetary policy, including the use of interest rates and other tools to stabilize the economy.
  3. Understanding the impact of technological progress: New Keynesian growth models can help explain the impact of technological progress on economic growth and the distribution of income.
  4. Designing fiscal policy: New Keynesian growth models can inform the design of fiscal policy, including the use of government spending and taxation to promote economic growth and stability.

Overall, New Keynesian growth models provide a framework for understanding the dynamics of economic growth, innovation, and technological progress in a world where prices and wages are sticky, and where there are frictions in the labor and goods markets.