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Teaching economics of monetary union with the IS-MP-PC model

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  • Arnold, Ivo J.M.

Abstract

This paper explains how the three-equation IS-MP-PC-model can be adapted to discuss macroeconomic adjustment in a monetary union. It introduces a two-country version that is used to illustrate the difficulties of macroeconomic adjustment in the presence of asymmetric demand and financial shocks. The level of analysis does not go beyond the level of a course in introductory macroeconomics. The adaption can be used by instructors in euro area countries to bridge the gap between the standard model and the macroeconomic issues that these countries face or by any instructor who wishes to analyze shocks in regions sharing the same currency. It also allows instructors to debate current policy issues with their students and thus motivate them for the field.

Suggested Citation

  • Arnold, Ivo J.M., 2023. "Teaching economics of monetary union with the IS-MP-PC model," International Review of Economics Education, Elsevier, vol. 44(C).
    • Handle: RePEc:eee:ireced:v:44:y:2023:i:c:s1477388023000178
    DOI: 10.1016/j.iree.2023.100276
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    Keywords

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    JEL classification:

    • A22 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Undergraduate
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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