A More Detailed IS-LM Story

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

Abstract

Textbooks give a fairly short IS-LM story. This paper offers a more detailed one. As listed in section VII, this story has ten 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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Fiscal policy; monetary policy; teaching of economics
• Subjects: A - General Economics and Teaching > A2 - Economic Education and Teaching of Economics; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy

References

Abel, Andrew B., Ben S. Bernanke, and Dean Croushore. 2017. "Macroeconomics", 9th ed. Boston: Pearson Education, Inc.

Benes, Jaromir, and Kumhof, Michael. 2012. "The Chicago Plan Revisited". IMF Working Paper WP/12/202.

Blanchard, Olivier. 2017. "Macroeconomics", 7th ed. Upper Saddle River, New Jersey: Pearson Education, Inc.

Bridel, Pascal. 2014. "The Treasury View: An (un-)expected return?" In The European Journal of the History of Economic Thought 21 (5). 920-942.

Cohen-Setton, Jérémie and Martin Kessler. 2011. "Traditional vs. Modern Macro". http://bruegel.org/2011/10/traditional-vs-modern-macro/

Clower, Robert. 1967. "A reconsideration of the microfoundations of monetary theory." In Economic Inquiry, 6. 1-8.

Dwivedi, D.N.. 2015. "Macroeconomics – Theory and Policy", 4th ed. New York: McGraw-Hill Irwin.

Fisher, Irving. 1911. "The Purchasing Power of Money: Its Determination and Relation to Credit, Interest and Crises", Macmillan, New York.

Federal Reserve. 2017a. "Velocity of M1 Money Stock", retrieved from FRED, Federal Reserve Bank of St. Louis.

Federal Reserve. 2017b. "Excess Reserves of Depository Institutions", retrieved from FRED, Federal Reserve Bank of St. Louis.

Froyen, Richard T.. 2013. "Macroeconomics", 10th ed. Upper Saddle River, New Jersey: Pearson Education, Inc.

Goodhart, Charles A.E., Hofmann, Boris and Miguel Segoviano. 2004. "Bank Regulation and Macroeconomic Fluctuations". Oxford Review of Economic Policy, 20:4. 591-615.

Gordon, Robert J.. 2012. "Macroeconomics", 12th ed. Boston: Pearson Addison Wesley.

Hansen, Alvin H.. 1953. "A Guide to Keynes". New York: McGraw Hill.

Heijdra, Ben J.. 2017. "Foundations of Modern Macroeconomics", 3rd ed. Oxford University Press.

Hicks, John R. 1937. "Mr. Keynes and the Classics: A Suggested Interpretation". In Econometrica 5 (2). 147-159.

Mankiw, N. Gregory. 2016. "Macroeconomics", 9th ed. New York: Worth Publishers.

McAfee, R. Preston. 2014. "Edifying Editing", In: Szenberg, Michael and Lall Ramrattan: "Secrets of Economic Editors". MIT Press 2014.

McLeay, Michael, Radia, Amar and Thomas, Ryland. 2014. "Money Creation in the Modern Economy", Bank of England Quarterly Bulletin.

Peden George C.. 2004. "Keynes and His Critics: Treasury Responses to the Keynesian Revolution, 1925-1946". Records of Social and Economic History, New Series 36. New York: Oxford University Press.

Romer, David, H.. 2000. "Keynesian Macroeconomics without the LM Curve." In Journal of Economic Perspectives, 14(2): 149-169.

Stein, Jeremy C. 2013. "Liquidity Regulation and Central Banking". Speech, Board of Governors of the Federal Reserve System. https://www.federalreserve.gov/newsevents/speech/stein20130419a.htm