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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.

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Article provided by Taylor & Francis Journals in its journal Journal of Economic Methodology.

Volume (Year): 6 (1999)
Issue (Month): 2 ()
Pages: 199-219

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Handle: RePEc:taf:jecmet:v:6:y:1999:i:2:p:199-219
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  1. 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.
  2. Eric M. Leeper & Christopher A. Sims, 1994. "Toward a Modern Macroeconomic Model Usable for Policy Analysis," NBER Working Papers 4761, National Bureau of Economic Research, Inc.
  3. 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.
  4. 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.
  5. Christopher A. Sims, 1992. "Interpreting the Macroeconomic Time Series Facts: The Effects of Monetary Policy," Cowles Foundation Discussion Papers 1011, Cowles Foundation for Research in Economics, Yale University.
  6. Fane, George, 1985. "A derivation of the IS-LM model from explicit optimizing behavior," Journal of Macroeconomics, Elsevier, vol. 7(4), pages 493-508.
  7. 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.
  8. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834.
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