A New Keynesian Model with Unemployment

  title={A New Keynesian Model with Unemployment},
  author={Olivier Jean Blanchard and Jordi Gaĺı},
We develop a utility based model of ‡uctuations, with nominal rigidities, and unemployment. In doing so, we combine two strands of research, the New Keynesian model with its focus on nominal rigidities, and the Diamond-Mortensen-Pissarides model, with its focus on labor market frictions and unemployment. In developing this model, we proceed in two steps. We …rst leave nominal rigidities aside. We show that, under a standard utility speci…cation, productivity shocks have no e¤ect on unemployment… CONTINUE READING

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