NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Jordi Galí

NBER Working Paper No. 18651
Issued in December 2012
NBER Program(s):   EFG   ME

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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