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A More Detailed IS-LM Story

Hiermeyer, Martin (2017): A More Detailed IS-LM Story.

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Abstract

Textbooks give a fairly short IS-LM story. This paper offers a more detailed one. This story has several advantages vis-à-vis the usual textbook story, including: (a) it is clear about what it means by "money"; (b) it describes the central bank as targeting an interest rate; and (c) it covers the money multiplier and quantitative easing. To unfold, the more detailed story requires only minor adjustments to the IS-LM model, mostly the addition of the quantity equation of money – a mere identity.

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