IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Money and the Transmission Mechanism in the Optimizing IS-LM Specification

  • Nelson, Edward

This Paper discusses criticisms of the IS-LM framework in the macroeconomic literature of the last 40 years, and how the modern optimizing version of IS-LM addresses those criticisms. It is argued that models that include the optimizing IS-LM specification are legitimate vehicles for dynamic analysis: the evolution of nominal wages and prices is treated endogenously, and there is full recognition of the intertemporal nature of households’ saving decisions. The optimizing version of IS-LM analysis remains vulnerable, however, to the monetarist critique: by recognizing an insufficient number of distinct assets, the IS-LM framework tends to understate the value of money as an indicator for monetary policy.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=3898
Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3898.

as
in new window

Length:
Date of creation: May 2003
Date of revision:
Handle: RePEc:cpr:ceprdp:3898
Contact details of provider: Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820

Order Information: Email:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Lyle E. Gramley & Samuel B. Chase, Jr., 1965. "Time deposits in monetary analysis," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Oct, pages 1380-1406.
  2. Van Order, Robert, 1978. "On the Bias in Estimates of the Effects of Monetary and Fiscal Policy," The Review of Economics and Statistics, MIT Press, vol. 60(2), pages 304-06, May.
  3. Michael De Vroey, 2000. "IS-LM à la Hicks versus IS-LM à la Modigliani," History of Political Economy, Duke University Press, vol. 32(2), pages 293-316, Summer.
  4. Michael D. Bordo & Anna J. Schwartz, 2004. "IS-LM and Monetarism," History of Political Economy, Duke University Press, vol. 36(5), pages 217-239, Supplemen.
  5. Nelson, Edward, 2003. "The future of monetary aggregates in monetary policy analysis," Journal of Monetary Economics, Elsevier, vol. 50(5), pages 1029-1059, July.
  6. Laidler, David, 1989. "Dow and Saville's Critique of Monetary Policy--A Review Essay," Journal of Economic Literature, American Economic Association, vol. 27(3), pages 1147-59, September.
  7. James Tobin, 1971. "Friedman's Theoretical Framework," Cowles Foundation Discussion Papers 309, Cowles Foundation for Research in Economics, Yale University.
  8. James Tobin, 1982. "Money and Finance in the Macro-Economic Process," Cowles Foundation Discussion Papers 613R, Cowles Foundation for Research in Economics, Yale University.
  9. Allan H. Meltzer, 1963. "The Demand for Money: The Evidence from the Time Series," Journal of Political Economy, University of Chicago Press, vol. 71, pages 219.
  10. Willem H. Buiter & James Tobin, 1978. "Fiscal and Monetary Policies, Capital Formation, and Economic Activity," Cowles Foundation Discussion Papers 512, Cowles Foundation for Research in Economics, Yale University.
  11. Bean, Charles R, 1983. "Targeting Nominal Income: An Appraisal," Economic Journal, Royal Economic Society, vol. 93(372), pages 806-19, December.
  12. Bennett T. McCallum & Edward Nelson, 1998. "Performance of Operational Policy Rules in an Estimated Semi-Classical Structural Model," NBER Working Papers 6599, National Bureau of Economic Research, Inc.
  13. John Bryant & Neil Wallace, 1979. "Monetary policy in the presence of a stochastic deficit," Staff Report 42, Federal Reserve Bank of Minneapolis.
  14. Poole, William, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, MIT Press, vol. 84(2), pages 197-216, May.
  15. Rao Aiyagari, S. & Gertler, Mark, 1985. "The backing of government bonds and monetarism," Journal of Monetary Economics, Elsevier, vol. 16(1), pages 19-44, July.
  16. Dupor, Bill, 2001. "Investment and Interest Rate Policy," Journal of Economic Theory, Elsevier, vol. 98(1), pages 85-113, May.
  17. 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.
  18. Fane, George, 1985. "A derivation of the IS-LM model from explicit optimizing behavior," Journal of Macroeconomics, Elsevier, vol. 7(4), pages 493-508.
  19. Warren Young & William Darity, Jr., 2004. "IS-LM-BP: An Inquest," History of Political Economy, Duke University Press, vol. 36(5), pages 127-164, Supplemen.
  20. Michael Woodford, 1996. "Control of the Public Debt: A Requirement for Price Stability?," NBER Working Papers 5684, National Bureau of Economic Research, Inc.
  21. Mayer, Thomas, 1972. "The Federal Reserve's Policy Procedures: A Review of a Federal Reserve Study and an Ensuing Conference," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 4(3), pages 529-50, August.
  22. 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.
  23. Rankin, Neil, 1987. "Disequilibrium and the Welfare-Maximising Levels of Government Spending, Taxation and Debt," Economic Journal, Royal Economic Society, vol. 97(385), pages 65-85, March.
  24. James Tobin & Willem H. Buiter, 1974. "Long Run Effects of Fiscal and Monetary Policy on Aggregate Demand," Cowles Foundation Discussion Papers 384, Cowles Foundation for Research in Economics, Yale University.
  25. Solow, R M, 1984. "Mr. Hicks and the Classics," Oxford Economic Papers, Oxford University Press, vol. 36(0), pages 13-25, Supplemen.
  26. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc.
  27. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-34, June.
  28. Karl Brunner, 1973. "A Diagrammatic Exposition of the Money Supply Process," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 109(IV), pages 481-533, December.
  29. Hodgman, Donald R, 1971. "British Techniques of Monetary Policy: A Critical Review," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 3(4), pages 760-79, November.
  30. James Tobin, 1977. "Deficit Spending and Crowding Out in Shorter and Longer Runs," Cowles Foundation Discussion Papers 463, Cowles Foundation for Research in Economics, Yale University.
  31. William Kerr & Robert G. King, 1996. "Limits on interest rate rules in the IS model," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 47-75.
  32. 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.
  33. Lucas, Robert E., 1988. "Money demand in the United States: A quantitative review," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 137-167, January.
  34. King, Robert G., 1988. "Money demand in the United States: A quantitative review," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 169-172, January.
  35. Friedman, Milton, 1970. "A Theoretical Framework for Monetary Analysis," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 193-238, March-Apr.
  36. Policano, Andrew J., 1985. "The current state of macroeconomics: A view from the textbooks," Journal of Monetary Economics, Elsevier, vol. 15(3), pages 389-397, May.
  37. Milton Friedman & Anna Jacobson Schwartz, 1970. "Monetary Statistics of the United States: Estimates, Sources, Methods," NBER Books, National Bureau of Economic Research, Inc, number frie70-1, October.
  38. Evan F. Koenig, 1993. "Rethinking the IS in IS-LM: adapting Keynesian tools to non-Keynesian economies Part 2," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Dec, pages 17-35.
  39. Robert Mundell, 1963. "Inflation and Real Interest," Journal of Political Economy, University of Chicago Press, vol. 71, pages 280.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:3898. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct address

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.