New Macroeconomics and Credibility Analysis

This paper gives a general view of the new macroeconomics: the new Keynesian macroeconomics, the real business cycle models and the analysis of credibility of monetary policy. An outline of the chief technical features that distinguish the new Keynesian and the real business cycle formulations is provided, highlighting the specific char-acteristics that have been reconciled by the recent literature on credi-bility analysis. The point to be illustrated is that the combination of new Keynesian market failures and the new classical general equi-librium approach to macroeconomics leads to better microeconomic foundation for the credibility analyses of monetary policy that follow the Barro-Gordon notion of inflation bias of discretionary monetary policy