Re-assessing New Keynesian paradox of flexibility

The paradox of flexibility in a classic New Keynesian model is shown to be generated by model design choices to achieve tractability. These design choices are made only for tractability considerations and are not fundamental. Once the form of cross-demand functions faced by firms is generalized, the paradox of flexibility disappears. Sticky price and monopolistic competition themselves are insufficient to generate the paradox, and additional economic structures are needed.

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Year of publication:	2020-05-16
Authors:	Kim, Minseong

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Type of publication:	Book / Working Paper
Language:	English
Notes:	Kim, Minseong (2020): Re-assessing New Keynesian paradox of flexibility.
Classification:	B22 - Macroeconomics ; B41 - Economic Methodology ; E13 - Neoclassical ; E30 - Prices, Business Fluctuations, and Cycles. General ; E50 - Monetary Policy, Central Banking and the Supply of Money and Credit. General ; E60 - Macroeconomic Policy Formation, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook. General
Source:	BASE

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