The New Keynesian Economics.

The book gives a rather detailed overview of what is usually called New Keynesian Macroeconomics. The title "The New Keynesian Economics" alone justifies this book, because the authors make clear that the new research fields in Keynesian economics are not to be found in macroeconomics, but in the microfoundation of the traditional Keynesian problems, namely sticky prices and wages. The several chapters are written at a level which would be both accessible and useful to graduate students and teachers interested in macroeconomic and microeconomic questions in the broad field of New Keynesian Economics. Therefore the book could be used as textbook as well as monograph.

The well-written book is clearly structured in five parts. The first part, the "Introduction," gives an overview over the development from Keynesian to New Keynesian Economics and over the Keynesian microfoundations in historical perspective. This is a brief survey of the several waves since the beginning of this research field with the paper by Clower in 1965 until the contributions of Malinvaud and others. On this basis the authors introduce the three main areas of New Keynesian Economics: Real rigidities, nominal rigidities, co-ordination failures and hysteresis.

The book ends with some conclusions about the present level of this research programme and a vast list of references, which would be useful for further investigation.

The first large part contains the three fields of real rigidities: real wage rigidities and the labor market, credit rationing and imperfect capital markets, real rigidities in the goods market. Each chapter has an own introduction and concluding remarks and a clear structure due to the main issues of the different theories. This has the advantage that the reader gains knowledge of the principle problems and ideas of each theory. It has the disadvantage of shortening the arguments. The authors labelled one chapter as "Real Wage Rigidity and Quality Effects: The Efficiency Wage Model" and the next "Real Wage Rigidity and Turnover: The Insider-Outsider Model." This is somewhat misleading because the empirically most relevant version of the efficiency wage models is the turnover model. Moreover, fluctuation is a problem of the firms because the workers have different qualifies in their human capital.

The second large chapter deals with nominal rigidities. This includes static and dynamic models of adjustment costs, rational models of irrational behavior and a comparison of real and nominal rigidities. The last point is especially of great interest, both in a theoretical and a empirical view. In the real world it is often hard to differentiate between real and nominal rigidities, therefore one has to know the interlinkages between them. In theory the following problems depend on the respective rigidities.

In the third part of the book one can find the problems of co-ordination failures and hysteresis. Two things are missing in the discussion of hysteresis: First, in contrast to the classical natural rate of unemployment the NAIRU as a typical brick of New Keynesian Economics and hysteresis should be mentioned. Second, explaining hysteresis only with the Insider-Outsider-Approach which alone has a rather low empirical evidence is inopportune. Moreover one should discuss the problems of diminishing human capital during the periods of unemployment and the rather poor position of large numbers of the unemployed in the labor market. Despite these few critical points, this book should be read in many universities.

Werner Sesselmeier Institute of Technology Darmstadt