Date of Award


Document Type


Degree Name

Master of Arts (MA)



First Advisor

Dr. Mark Wohar

Second Advisor

Dr. Kim Sosin

Third Advisor

Dr. Justin Stolen


In an attempt to explain and forecast the behavior of economic variables and of the economy as a whole, each school of economics creates its own system of paradigms, premises and models. The New Keynesian school of thought developed from the traditional Keynesian insights tries to offer additional explanations, based on microeconomic foundations, for such phenomena as economy-wide fluctuations of output and prices and for the persistent high levels of unemployment that economies experience. The task of New Keynesian economics is to explain the rigidities of prices and wages that keep the economy from reaching a full-employment equilibrium. The essential features of New Keynesian macroeconomics are the failure of the classical dichotomy and the absence of the Walrasian features of the economy — the marketclearing equilibrium. But starting from these, the literature that bears the label "New Keynesian" is extremely broad and offers multiple visions of how the economy behaves. The purpose of the present thesis is to synthesize the works that have been accomplished within the New Keynesian theory, in order to underline the common points and solutions suggested by this school, trying to provide a more precise and clear image of the theories built on New Keynesian premises; some results of empirical testing of New Keynesian models are included. The research also intends to reveal the differences in opinions, the unsolved questions, and criticisms to the New Keynesian theory. These provide roots for further research, theoretical developments, and empirical testing.


A Thesis Presented to the Department of Economics and the Faculty of the College of Business Administration University of Nebraska In Partial Fulfillment of the Requirements for the Degree Master of Arts University of Nebraska at Omaha. Copyright 1994, Adriana Gafencu

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