Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/315936 
Year of Publication: 
2025
Series/Report no.: 
Working Paper No. WP 2025-02
Publisher: 
Federal Reserve Bank of Chicago, Chicago, IL
Abstract: 
We provide a brief primer on how the core of usable macroeconomic theory for monetary policymakers has evolved over the past 50 years. Today's policy discussions center on the New Keynesian (NK) synthesis, which builds on the Neoclassical growth model and the AS-AD framework. It incorporates nominal and real rigidities, financial and labor market frictions, the importance of expectations, and inspired terms used by policymakers such as "anchored inflation expectations" and "forward guidance." While essential for communication during the Great Recession and COVID-19 pandemic, these events also revealed the NK model's limitations. Newer models incorporating heterogeneous agents potentially offer richer policy insights but add complexity and the challenge of distilling their main policy implications going forward.
Subjects: 
History of economic thought
monetary policy
JEL: 
B22
E50
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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