Rethinking the IS in IS-LM: adapting Keynesian tools to non-Keynesian economies Part 2
The IS-LM diagram was developed as a tool for analyzing Keynesian economies-economies with sticky prices and myopic households. In Part 1 of this article, Evan Koenig showed how a graphical apparatus similar to the traditional IS-LM diagram can be used to analyze economies with a fixed capital stock and optimizing, forward-looking households. Part 2 extends the earlier analysis to an economy with capital investment. As before, an expectations-augmented variant of the IS-LM model is found to include a popular real-business-cycle model as a special case. Thus, the IS-LM diagram has wide applicability as a pedagogical device and as a framework within which to discuss policy.
Volume (Year): (1993)
Issue (Month): Dec ()
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- Evan F. Koenig, 1993. "Rethinking the IS in IS-LM: adapting Keynesian tools to non-Keynesian economies Part 1," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Sep, pages 32-50.
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in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246
National Bureau of Economic Research, Inc.
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American Economic Association, vol. 7(1), pages 45-65, Winter.
- James Tobin, 1991. "Price Flexibility and Output Stability: An Old Keynesian View," Cowles Foundation Discussion Papers 994R, Cowles Foundation for Research in Economics, Yale University, revised Sep 1991.
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