[5] The assumption of imperfect competition and its effects on nominal and real distortions in the New Keynesian economic framework had given way to new ideas and research of stabilization policies.
A series of publications by Schmitt-Grohé, Jess Benhabib and Martín Uribe between 2001 and 2002 seek to address what they considered a gap in the current literature on stabilization policy.
Schmitt-Grohé's research deviated mainly in its loosening of these local dynamics and its consideration of a zero lower bound on nominal interest rates.
This research has taken on importance in the post financial crisis discourse regarding the presence of a liquidity trap and the subsequent historically low interest rates.
Economies that face downward rigidity on prices however, will experience less effectiveness from monetary policy, with real devaluation taking place slowly.