Jordi Galí

Research contributions

Galí's research centers on the causes of business cycles and on optimal monetary policy, especially through the lens of time series analysis. His studies with Richard Clarida and Mark Gertler suggest that monetary policy in many countries today resembles the Taylor rule, whereas the policy makers of the 1970s failed to follow the Taylor rule.

Another theme of Galí's research is how central banks should set interest rates. In some of the simplest New Keynesian macroeconomic models, stabilizing the inflation rate stabilizes the output gap too. If this property were roughly true in reality, it would permit central bankers to pursue a simplified Taylor rule focused only on inflation stabilization, with no need to consider output growth. Jordi Galí and Olivier Blanchard have called this property the 'divine coincidence', and have argued that in more realistic models which include additional frictions, it no longer holds. Instead, models with additional frictions (such as frictional unemployment) imply a tradeoff between stabilizing inflation and stabilizing the output gap.

Galí is perhaps best known for providing time series evidence that improvements in labour productivity cause employment to decrease. This finding contradicts the predictions of some well-known real business cycle models promoted by the New Classical macroeconomic school, but is (according to Galí) consistent with many New Keynesian models. However, the statistical methods ('structural vector autoregressions') on which this finding is based remain controversial.

Galí is the most cited author of Journal of Monetary Economics and European Economic Review.