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Teaching Intermediate Macroeconomics using the 3-Equation Model

In: Macroeconomic Theory and Macroeconomic Pedagogy

Author

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  • Wendy Carlin
  • David Soskice

Abstract

Much teaching of intermediate macroeconomics uses the IS-LM-AS or AD-AS approach. This is far removed both from the practice of interest rate setting, inflation-targeting central banks and from the models that are taught in graduate courses. Modern monetary macroeconomics is based on what is increasingly known as the 3-equation New Keynesian model: IS curve, Phillips curve and interest rate-based monetary policy rule (IS-PC-MR). This is the basic analytical structure of Michael Woodford’s book Interest and Prices published in 2003 and, for example, of the widely cited paper ‘The New Keynesian Science of Monetary Policy’ by Clarida et al. published in the Journal of Economic Literature in 1999. A recent graduate textbook treatment is Galí (2008). Much of this literature is inaccessible to undergraduates and non-specialists. Our aim is to show how this divide can be bridged in a way that retains the tractability and policy-friendliness of the old approach yet fits the institutional realities of contemporary policy-making and opens the way to the more advanced literature.

Suggested Citation

  • Wendy Carlin & David Soskice, 2009. "Teaching Intermediate Macroeconomics using the 3-Equation Model," Palgrave Macmillan Books, in: Giuseppe Fontana & Mark Setterfield (ed.), Macroeconomic Theory and Macroeconomic Pedagogy, chapter 1, pages 13-35, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-29166-9_2
    DOI: 10.1007/978-0-230-29166-9_2
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    Citations

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    Cited by:

    1. Eckhard Hein & Judith Martschin, 2021. "Demand and growth regimes in finance-dominated capitalism and the role of the macroeconomic policy regime: a post-Keynesian comparative study on France, Germany, Italy and Spain before and after the G," Review of Evolutionary Political Economy, Springer, vol. 2(3), pages 493-527, December.
    2. Sarah Godar & Christoph Paetz & Achim Truger, 2015. "The scope for progressive tax reform in the OECD countries. A macroeconomic perspective with a case study for Germany," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(5), pages 79-117.
    3. Eckhard Hein, 2018. "Autonomous government expenditure growth, deficits, debt, and distribution in a neo-Kaleckian growth model," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 41(2), pages 316-338, April.
    4. 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).
    5. Giovanni Bella, 2017. "Beyond the Accelerating Inflation Controversy: The Jerk and Jounce Price Variation," International Journal of Economics and Financial Research, Academic Research Publishing Group, vol. 3(11), pages 315-322, 11-2017.
    6. Achim Truger, 2013. "Steuerpolitik im Dienste der Umverteilung: eine makroökonomische Ergänzung," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 82(1), pages 43-59.
    7. Anna M. Carabelli & Mario A. Cedrini, 2010. "Global imbalances, monetary disorder, and shrinking policy space: Keynes's legacy for our troubled world," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 7(2), pages 303-323.
    8. Fernando Zarzosa Valdivia, 2020. "Dinámica inflacionaria argentina pre-COVID 19: un mundo minado de outliers," Asociación Argentina de Economía Política: Working Papers 4428, Asociación Argentina de Economía Política.
    9. Matteo Deleidi, 2019. "Endogenous money theory: horizontalists, structuralists and the credit market," Bulletin of Political Economy, Bulletin of Political Economy, vol. 13(1), pages 21-53, June.

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