Editing New Keynesian economics (section)

==Relation to other macroeconomic schools==
Over the years, a sequence of 'new' macroeconomic theories related to or opposed to [[Keynesian economics|Keynesianism]] have been influential.<ref>{{cite journal |first=Michael |last=Woodford |year=1999 |url=http://www.columbia.edu/%7Emw2230/macro20C.pdf |title=Revolution and evolution in 20th century macroeconomics |journal=Mimeo |publisher=Columbia University}}</ref> After [[World War II]], [[Paul Samuelson]] used the term ''[[neoclassical synthesis]]'' to refer to the integration of Keynesian economics with [[neoclassical economics]]. The idea was that the government and the central bank would maintain rough full employment, so that [[neoclassical economics|neoclassical]] notions—centered on the axiom of the universality of [[scarcity]]—would apply. [[John Hicks]]' [[IS/LM]] model was central to the neoclassical synthesis.

Later work by economists such as [[James Tobin]] and [[Franco Modigliani]] involving more emphasis on the [[microfoundations]] of consumption and investment was sometimes called [[neo-Keynesianism]]. It is often contrasted with the [[Post-Keynesian economics|post-Keynesianism]] of [[Paul Davidson (economist)|Paul Davidson]], which emphasizes the role of fundamental [[uncertainty]] in economic life, especially concerning issues of private [[fixed investment]].

New Keynesianism was a response to [[Robert Lucas, Jr.|Robert Lucas]] and the [[new classical economics|new classical]] school.<ref>{{cite book |last=Gali |first=Jordi |year=2015 |title=Monetary Policy, Inflation and the Business Cycle: An Introduction to the New Keynesian Framework and Its Applications |edition=2nd |publisher=Princeton University Press |location=Princeton and Oxford |isbn=978-0-691-16478-6 |pages=5–6}}</ref> That school criticized the inconsistencies of Keynesianism in the light of the concept of "[[rational expectations]]". The new classicals combined a unique [[market clearing|market-clearing]] equilibrium (at [[full employment]]) with rational expectations. The New Keynesians used "microfoundations" to demonstrate that price stickiness hinders markets from clearing. Thus, the rational expectations-based equilibrium need not be unique.

Whereas the neoclassical synthesis hoped that [[fiscal policy|fiscal]] and [[monetary policy]] would maintain [[full employment]], the [[new classical economics|new classicals]] assumed that price and wage adjustment would automatically attain this situation in the short run. The new Keynesians, on the other hand, saw full employment as being automatically achieved only in the long run, since prices are "sticky" in the short run. Government and central-bank policies are needed because the "long run" may be very long.

Ultimately, the differences between new classical macroeconomics and New Keynesian economics were resolved in the [[new neoclassical synthesis]] of the 1990s, which forms the basis of [[mainstream economics]] today,<ref name="columbia.edu"/><ref name="scholar.harvard.edu"/><ref name="richmondfed.org"/> and the Keynesian stress on the importance of centralized coordination of macroeconomic policies (e.g., monetary and fiscal stimulus), international economic institutions such as the [[World Bank]] and [[International Monetary Fund]] (IMF), and of the maintenance of a controlled trading system was highlighted during the 2008 global financial and economic crisis. This has been reflected in the work of IMF economists<ref>Antonio Spilimbergo, Steve Symansky, Olivier Blanchard, and Carlo Cottarelli (29 December 2008). [https://blogs.wsj.com/economics/2008/12/29/imf-what-kind-of-stimulus-will-work/ "Fiscal Policy for the Crisis"]. IMF Fiscal Affairs and Research Departments.</ref> and of [[Donald Markwell]].<ref>{{cite book |first=Donald |last=Markwell |author-link=Donald Markwell |title=John Maynard Keynes and International Relations: Economic Paths to War and Peace |publisher=Oxford University Press |year=2006}}</ref>