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I'm looking for textbooks that explain the New-Keynesian models, without taking shortcuts on the mathematics, that would go in depth on the derivations of the formulas. I appreciate rigour, and clarity above all else. If intuition is supplied, it would be perfect.

I find Jordi Galí's book on monetary policy is not good at presenting the model, specially by not explaining the mathematical assumptions (which are not simple details...)

Edi: Check the link found here

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Michael Woodford's book Interest and Prices, while it may not be explicitly New Keynesian, may have some of the rigor you're looking for applied to this class of models.

A more direct alternative would be New Keynesian Economics edited by Mankiw and Romer. While it's a collection of papers not a textbook, if you're looking for underpinnings of New Keynesian models this'd be a good place to start. Also "The Science of Monetary Policy: A New Keynesian Perspective" by Clarida, Gali and Gertler.

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  • $\begingroup$ Should I payattention to this? economics.adelaide.edu.au/research/papers/doc/wp2008-03.pdf $\endgroup$ – An old man in the sea. Dec 26 '14 at 17:56
  • $\begingroup$ also ideas.repec.org/p/wpa/wuwpma/0504028.html $\endgroup$ – An old man in the sea. Dec 26 '14 at 18:10
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    $\begingroup$ Before reading Woodford's book? No. My impression is that Woodford's work is generally well respected. For a far more informed opinion you can look at the JEL review by Edward Green: jstor.org/stable/4129309 He notes that Woodford himself calls his models "new Wicksellian" but I'm not sure whether that's a meaningful distinction. $\endgroup$ – jayk Dec 26 '14 at 20:19
  • $\begingroup$ I added a couple extra places to look. $\endgroup$ – jayk Dec 26 '14 at 20:32
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    $\begingroup$ The difficulty is that "New Keynesian" has meant different things at different times. Woodford might have called his approach new Wicksellian, but in practice his book basically epitomizes the current New Keynesian core. Ironically, the Mankiw and Romer volume is dated enough that much of it bears little correspondence to "New Keynesian" models today. $\endgroup$ – nominally rigid Dec 27 '14 at 7:53
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Check out the following:

Jordi Gali; Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework

David Romer; Advanced Macroeconomics

Michael Woodford; Interest and Prices: Foundations of a Theory of Monetary Policy

The first two will ground you in the theory of nominal rigidities and the business cycle. Woodford's book is a good advanced text on the theory of monetary policy. I would not start with Woodford to understand the basic New Keynesian model. Practice problems with the first two books first, then move on to Woodford.

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    $\begingroup$ I've already checked the first two. The first leaves enough mathematical details out that we could write another book on the subject. The second seems to be too simple, and lacking more modern formulations and techniques. $\endgroup$ – An old man in the sea. Jan 4 '15 at 22:41
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Drago Bergholt has all math steps for Gali's book:

The Basic New Keynesian Model

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I've just found Michael Wickens' Book

and George Mccandless' ABC of RBC.

Wickens leaves the stochastic element of the DSGE's model out of the picture, so I'm not sure if it's a good book.

McCandless book has great reviews. I took a peek and it seems to be really good pedagogical tool. It may really be a good buy.

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  • $\begingroup$ @nominallyrigid Do you know any of these books? $\endgroup$ – An old man in the sea. Jan 4 '15 at 22:36
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    $\begingroup$ An old man in the sea, I am mildly familiar with both. McCandless's book seems like a straightforward and decent practical guide to simple DSGE models. Wickens's book is an attempt at a very broad overview of modern macro, and doesn't really have any strengths except this unmatched breadth. I'm not well-placed to evaluate its pedagogical soundness, but I've noticed a lot of confusion in Wickens: just in the first few chapters, he mangles discussion of temporary TFP shocks, time to build, the Blanchard perpetual youth model, etc. Maybe this inaccuracy is the result of trying to be too broad. $\endgroup$ – nominally rigid Jan 5 '15 at 20:23
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One book which I have used and which has an excellent chapter on NK-DSGE models is Monetary Theory and Policy by Carl E. Walsh. Even though he only has one chapter on NK-DSGE models (50 pages or so) the chapters before discuss staggered price and wage setting models used in the NK-DSGE models. He also has chapters discussing the Sidrauski MIU model and the Cash-in-Advance models which are close relatives to the RBC and NK-DSGE models. I personally think this book is better than the Galí's book.

Other books which I haven't used (I once for some years ago used a chapter in the Wickens book) but which get okay reviews on Amazon are:

Dynamic General Equilibrium Modeling: Computational Methods and Applications, Macroeconomic Theory: A Dynamic General Equilibrium Approach and The ABCs of RBCs: An Introduction to Dynamic Macroeconomic Models

In case you do get the The ABCs of RBCs: An Introduction to Dynamic Macroeconomic Models could you make a quick comment on how it is and if it is worth getting? I think it looks interesting.

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I often dip into "advanced undergrad" texts when I really want something broken down. Sometimes they deliver, sometimes not.

With that beaming endorsement, I'll offer this suggestion: pair Romer's Advanced Macroeconomics, with Jeffery Parker's Coursebook (for Romer) for Macro Theory at Reed College. His coursebook takes the time to really work through some of the derivations in Romer carefully. Unfortunately I haven't used the NK portions so can't directly speak to them.

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It is really worrisome that none of respondents has an idea of what "New Keynesian Economics" really is. One thing is the New Classical monetary model (also called New Keynesian Monetary model to which most respondents refer) and the other is the New Keynesian Economics as exemplified by papers collected in the two volumes by Mankiw and Romer. This is what NK economics really is. There is only one book on the subject which, by the way, is an excellent textbook: Benassi, Chirco and Colombo (1994), The New Keynesian Economics. You can find an undergraduate presetnation in Gordon's Macroeconomics book (latest editions) and a somewhat more advanced, but streamlined presentation in Romer's Advanced Macroeconomics book. All the best.

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