Editing New Keynesian economics (section)

===1970s===
The first wave of New Keynesian economics developed in the late 1970s. The first model of ''Sticky information'' was developed by [[Stanley Fischer]] in his 1977 article, ''Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule''.<ref>{{cite journal |last=Fischer |first=S. |year=1977 |title=Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule |journal=[[Journal of Political Economy]] |volume=85 |issue=1 |pages=191–205 |jstor=1828335 |doi=10.1086/260551|url=http://dspace.mit.edu/bitstream/1721.1/63894/1/longtermcontract00fisc.pdf |hdl=1721.1/63894 |s2cid=36811334 |hdl-access=free }}</ref> He adopted a "staggered" or "overlapping" contract model. Suppose that there are two unions in the economy, who take turns to choose wages. When it is a union's turn, it chooses the wages it will set for the next two periods. This contrasts with [[John B. Taylor]]'s model where the nominal wage is constant over the contract life, as was subsequently developed in his two articles: one in 1979, "Staggered wage setting in a macro model",<ref>{{cite journal | last1 = Taylor | first1 = John B | year = 1979 | title = Staggered wage setting in a macro model | journal = American Economic Review | volume = 69 | issue = 2| pages = 108–113 }}</ref> and one in 1980, "Aggregate Dynamics and Staggered Contracts".<ref>{{cite journal | last1 = Taylor | first1 = John B | year = 1980 | title = Aggregate Dynamics and Staggered Contracts | journal = Journal of Political Economy | volume = 88 | issue = 1| pages = 1–23 | doi = 10.1086/260845 | s2cid = 154446910 }}</ref> Both Taylor and Fischer contracts share the feature that only the unions setting the wage in the current period are using the latest information: wages in half of the economy still reflect old information. The Taylor model had sticky nominal wages in addition to the sticky information: nominal wages had to be constant over the length of the contract (two periods). These early new Keynesian theories were based on the basic idea that, given fixed nominal wages, a monetary authority (central bank) can control the employment rate. Since wages are fixed at a nominal rate, the monetary authority can control the [[real wage]] (wage values adjusted for inflation) by changing the money supply and thus affect the employment rate.<ref>{{cite journal | last1 = Mankiw | first1 = N. Gregory | year = 1990 | title = A Quick Refresher Course in Macroeconomics | journal = Journal of Economic Literature | volume = 28 | pages = 1645–1660 [1658] | doi = 10.3386/w3256 | s2cid = 56101250 | doi-access = free }}</ref>