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The evolution of IS-LM models: empirical evidence and theoretical presuppositions


  • Alessandro Vercelli


This paper offers an explanation of the resilience of IS-LM models, which are still alive more than sixty years after the birth of the first prototype despite growing criticism within the profession. To this end two significant episodes of their evolution are examined in some detail: the genesis of the prototype of the 'first generation' of IS-LM models (Hicks 1937), and a recent example of what is here called the 'second generation' of IS-LM models (McCallum and Nelson 1997). The resilience of IS-LM models is mainly related to their adaptability to a changing perception of the economic environment within which they are applied. This depends on the evolution of the relevant stylized facts and of the salient policy problems as well as on the evolution of the prevailing theoretical assumptions and methodological approaches. The stock of cumulated empirical evidence and the flow of new additions to it have both played a role in this process, though they have done so mainly indirectly by affecting the perception of the economic environment.

Suggested Citation

  • Alessandro Vercelli, 1999. "The evolution of IS-LM models: empirical evidence and theoretical presuppositions," Journal of Economic Methodology, Taylor & Francis Journals, vol. 6(2), pages 199-219.
  • Handle: RePEc:taf:jecmet:v:6:y:1999:i:2:p:199-219 DOI: 10.1080/13501789900000014

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    References listed on IDEAS

    1. McCallum, Bennett T. & Nelson, Edward, 1999. "Nominal income targeting in an open-economy optimizing model," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 553-578, June.
    2. Sims, Christopher A., 1992. "Interpreting the macroeconomic time series facts : The effects of monetary policy," European Economic Review, Elsevier, vol. 36(5), pages 975-1000, June.
    3. McCallum, Bennett T & Nelson, Edward, 1999. "An Optimizing IS-LM Specification for Monetary Policy and Business Cycle Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 296-316, August.
    4. Fane, George, 1985. "A derivation of the IS-LM model from explicit optimizing behavior," Journal of Macroeconomics, Elsevier, vol. 7(4), pages 493-508.
    5. Jordi Galí, 1992. "How Well Does The IS-LM Model Fit Postwar U. S. Data?," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 709-738.
    6. Eric M. Leeper & Christopher A. Sims, 1994. "Toward a Modern Macroeconomic Model Usable for Policy Analysis," NBER Chapters,in: NBER Macroeconomics Annual 1994, Volume 9, pages 81-140 National Bureau of Economic Research, Inc.
    7. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, July.
    8. Robert G. King, 1993. "Will the New Keynesian Macroeconomics Resurrect the IS-LM Model?," Journal of Economic Perspectives, American Economic Association, vol. 7(1), pages 67-82, Winter.
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    Cited by:

    1. Michel De Vroey, 2004. "The History of Macroeconomics Viewed against the Background of the Marshall-Walras Divide," History of Political Economy, Duke University Press, vol. 36(5), pages 57-91, Supplemen.
    2. Edward Nelson, 2004. "Money and the Transmission Mechanism in the Optimizing IS-LM Specification," History of Political Economy, Duke University Press, vol. 36(5), pages 271-304, Supplemen.
    3. Schilirò, Daniele, 2005. "Il simposio su "mr. Keynes' system" all'Oxford meeting e il modello is-lm
      [The symposium on " mr. Keynes' system" to the Oxford meeting and the is-lm model]
      ," MPRA Paper 33019, University Library of Munich, Germany.
    4. Boermans, Martijn Adriaan & Moore, Basil J, 2008. "Locked-in and Sticky Textbooks: Mainstream Teaching of the Money Supply Process," MPRA Paper 14845, University Library of Munich, Germany, revised Apr 2009.
    5. Goulven Rubin, 2014. "Oskar Lange or how IS-LM came to be interpreted as a Walrasian model," Working Papers halshs-01018658, HAL.
    6. Nuta Alina Cristina, 2012. "A Keynesian view on the management of fiscal and budgetary instruments," EuroEconomica, Danubius University of Galati, issue 3(31), pages 67-71, August.
    7. Szomolányi Karol & Lukáčik Martin & Lukáčiková Adriana, 2011. "Vplyv monetárneho zásahu v rámci IS-LM modelu s dynamickou úpravou cien a adaptívnymi očakávaniami
      [Effect of Monetary Intervention in the Frame of IS-LM Model with Dynamic Price Adjustment and Ada
      ," Politická ekonomie, University of Economics, Prague, vol. 2011(1), pages 47-57.
    8. Claudia Heller, 2007. "Hicks, A Teoria Geral e A Teoria Geral Generalizada," Economia, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 8(3), pages 401-436.


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