Why is Michael Woodford’s “New Keynesian” model so different from old Keynesianism?

Comment “Macroeconomics” and we’ll send you an article on the ideas that reshaped modern macroeconomic policy. In Part II of our series on the 2026 Nobel Prize in Economics, we look at Michael Woodford, whose work helped build the canonical New Keynesian model and transformed how economists think about monetary policy, expectations, and macroeconomic stabilization. Despite the name, Woodford’s framework is better understood as a continuation of the intellectual revolution associated with Milton Friedman and Robert Lucas than as a return to Keynes’s original macroeconomic vision. What Woodford retains from Keynes is mainly the idea that prices and wages can be sticky. Everything else is rebuilt around forward-looking behavior, rational expectations, optimization, general equilibrium, and explicit rules for monetary policy. Woodford’s achievement was to show how monetary policy could be analyzed with the discipline of modern microeconomics rather than the ad hoc relationships that characterized much of Old Keynesianism.