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Teaching business cycles with the IS-TR model


  • Tervala, Juha


Business cycles are an essential part of macroeconomics. However, the study of macroeconomics often ignores the observed business cycles. During and after the global financial crisis, several economists have emphasized that macroeconomics courses will have to be changed. This paper presents a real world application of the IS-TR model, which helps to explain and teach business cycles. The simple Keynesian model clearly explains output fluctuations and the conduct of monetary policy. The main reason for strong business cycles in the euro area has been shocks in the goods market. The European Central Bank has changed its main interest rate mainly as a reaction to changes in the output gap.

Suggested Citation

  • Tervala, Juha, 2014. "Teaching business cycles with the IS-TR model," MPRA Paper 58992, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:58992

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    References listed on IDEAS

    1. Alan Blinder, 2010. "Teaching Macro Principles after the Financial Crisis," The Journal of Economic Education, Taylor & Francis Journals, vol. 41(4), pages 385-390, September.
    2. Bluedorn, John C. & Bowdler, Christopher, 2011. "The open economy consequences of U.S. monetary policy," Journal of International Money and Finance, Elsevier, vol. 30(2), pages 309-336, March.
    3. Benjamin M. Friedman, 2010. "Reconstructing Economics in Light of the 2007--? Financial Crisis," The Journal of Economic Education, Taylor & Francis Journals, vol. 41(4), pages 391-397, September.
    4. Robert J. Shiller, 2010. "How Should the Financial Crisis Change How We Teach Economics?," The Journal of Economic Education, Taylor & Francis Journals, vol. 41(4), pages 403-409, September.
    5. repec:pri:cepsud:207blinder is not listed on IDEAS
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    Blog mentions

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    1. Links for 10-23-14
      by Mark Thoma in Economist's View on 2014-10-23 05:06:00

    More about this item


    Business cycles; IS-TR model; macroeconomics; teaching of economics;

    JEL classification:

    • A20 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - General
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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