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The New Keynesian framework has emerged as the workhorse for the analysis of monetary policy and its implications for inflation, economic fluctuations, and welfare. It is the backbone of the new generation of mediumscale models under development at major central banks and international policy institutions, and provides the theoretical underpinnings of the inflation stabilityoriented strategies adopted by most central banks throughout the industrialized world. This graduatelevel textbook provides an introduction to the New Keynesian framework and its applications to monetary policy. Using a canonical version of the New Keynesian model as a reference framework, Jordi Gal explores issues pertaining to the design of monetary policy, including the determination of the optimal monetary policy and the desirability of simple policy rules. He analyzes several extensions of the baseline model, allowing for costpush shocks, nominal wage rigidities, and open economy factors. In each
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