What are new keynesian models?

New Keynesian models are like a super smart recipe that helps grown-ups understand how money and prices change in a country.

Imagine you're making pancakes for your whole family. You know exactly how much flour, eggs, and milk you need to make 5 pancakes. But if suddenly there are 10 people coming over for breakfast, you might not be able to flip all those pancakes right away, it takes time to adjust. That’s like what happens in the real world with prices and wages.

In New Keynesian models, we think about how businesses and workers don’t always change their prices or wages right away when something changes, like a big storm (like a recession) or a sudden increase in the cost of ingredients. This delay is called stickiness, just like your pancake batter takes time to cook.

These models help grown-ups see how things like interest rates, inflation, and jobs work together, kind of like how you need the right amount of heat for your pancakes to turn out perfect!