The New IS-LM Model: Language, Logic, and Limits

FRB Richmond Economic Quarterly, Vol. 86, No. 3, Summer 2000, pp. 45-104

59 Pages Posted: 28 Nov 2012

See all articles by Robert G. King

Robert G. King

Boston University - Department of Economics; Federal Reserve Bank of Richmond - Research Department; National Bureau of Economic Research (NBER)

Date Written: 2000

Abstract

Macroeconomists are increasingly using a New IS-LM model to discuss the economy’s response to shocks and the design of monetary policy rules. This new model has better microfoundations than earlier IS-LM models and explicitly incorporates expectations about future economic conditions. Price level, or inflation rate, targeting is desirable in the New IS-LM model, for it stabilizes output at capacity. Such neutral policies require adjustments to the nominal interest rate as changes occur in the real economy.

Suggested Citation

King, Robert G., The New IS-LM Model: Language, Logic, and Limits (2000). FRB Richmond Economic Quarterly, Vol. 86, No. 3, Summer 2000, pp. 45-104. Available at SSRN: https://ssrn.com/abstract=2126570

Robert G. King (Contact Author)

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States
617-353-5941 (Phone)

Federal Reserve Bank of Richmond - Research Department

P.O. Box 27622
Richmond, VA 23261
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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