Towards a New Macroeconomics. From ISLM-AS and DSGE to GSMS and GSMS-SS

24 Pages Posted: 22 Feb 2014 Last revised: 25 Feb 2014

Antony P. Mueller

Federal University of Sergipe (UFS) - Universidade Federal de Sergipe; University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg

Date Written: February 20, 2014

Abstract

Different from conventional macroeconomic models, which start from the presumption that the economy is permanently in need of control and repair, the goods side/money side (GSMS) approach is not a tool to guide policy intervention but aims at demonstrating how the economy works. As such, the model provides an explanatory framework that should be particularly useful for business and finance, while the message for policy makers is mainly what not to do. The GSMS approach avoids the ambiguities about flexibility or rigidity of the price level, real and nominal variables and the short and the long run that plague ISLM-AS analyses. With business activity as the micro-foundation of the GSMS model, the approach does away with the surreal assumptions of DSGE models. In its GSMS-SS version, the model connects the short run with the long run laying the groundwork for a novel way of business cycle analysis. The GSMS and GSMS-SE models facilitate the teaching of macroeconomics and provide the tools for the systematic analysis of macroeconomic configurations and policy concepts.

Keywords: GSMS, ISLM, ISLM-AS, DSGE, AS/AD, Goods Side/Money Side, business cycle, Austrian economics, macroeconomic analysis, macroeconomic policy, inflation targeting, NGDP targeting

JEL Classification: A2, E1, E5, E6

Suggested Citation

Mueller, Antony P., Towards a New Macroeconomics. From ISLM-AS and DSGE to GSMS and GSMS-SS (February 20, 2014). Available at SSRN: https://ssrn.com/abstract=2399275 or http://dx.doi.org/10.2139/ssrn.2399275

Antony P. Mueller (Contact Author)

Federal University of Sergipe (UFS) - Universidade Federal de Sergipe ( email )

Departamento de Economia
Jardim Rosa Elze, Av. Marechal Rondon
São Cristóvão, Sergipe 491000-000
Brazil
55-79-996013131 (Phone)

HOME PAGE: http://www.continentaleconomics.com

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg ( email )

Schloßplatz 4
Erlangen, Bavaria 91054
Germany

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