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The Nature of the ADAS Model Based on the ISLM Model

Author

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  • B Bhaskara Rao

    (University of the South Pacific)

Abstract

The aggregate demand and supply model (ADAS) is interpreted as a synthesis of the Keynesian and neoclassical models. It uses the ISLM model, without explaining its nature, to derive aggregate demand (AD). It is combined with an aggregate supply (AS) curve to explain price- inflation and output dynamics. This paper argues that neither the AD nor AS curve is conceptually the same as its microeconomic counterpart and ADAS is not a synthesis. In fact ADASimplies that discretionary policy is necessary and that price changes do not perform their traditional negative feedback function.

Suggested Citation

  • B Bhaskara Rao, 2005. "The Nature of the ADAS Model Based on the ISLM Model," Macroeconomics 0510001, EconWPA.
  • Handle: RePEc:wpa:wuwpma:0510001 Note: Type of Document - pdf; pages: 15. Argues that the textbook ADAS model is in need of attention.
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    File URL: http://econwpa.repec.org/eps/mac/papers/0510/0510001.pdf
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    References listed on IDEAS

    as
    1. Felderer, Bernhard & Homburg, Stefan, 2005. "Makroökonomik und neue Makroökonomik," EconStor Books, ZBW - German National Library of Economics, number 92556, December.
    2. Frank Hahn, 1978. "On Non-Walrasian Equilibria," Review of Economic Studies, Oxford University Press, vol. 45(1), pages 1-17.
    3. Rao, B Bhaskara, 1986. "Alternative Aggregate Demand Functions in Macroeconomics," Australian Economic Papers, Wiley Blackwell, vol. 25(47), pages 261-264, December.
    4. William Poole, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, Oxford University Press, vol. 84(2), pages 197-216.
    5. David H. Romer, 2000. "Keynesian Macroeconomics without the LM Curve," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 149-169, Spring.
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    Citations

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    Cited by:

    1. Heilemann, Ullrich & Findeis, Hagen, 2012. "Empirical determination of aggregate demand and supply curves: The example of the RWI Business Cycle Model," Economic Modelling, Elsevier, vol. 29(2), pages 158-165.
    2. Albert Mafusire & Zuzana Brixiova, 2012. "Working Paper 156 - Macroeconomic Shock Synchronization in the East African Community," Working Paper Series 432, African Development Bank.
    3. Rao, B. Bhaskara & Kumar, Saten, 2009. "A panel data approach to the demand for money and the effects of financial reforms in the Asian countries," Economic Modelling, Elsevier, vol. 26(5), pages 1012-1017, September.
    4. Rao, B. Bhaskara & Tamazian, Artur & Singh, Prakash, 2009. "Demand for Money in the Asian Countries: A Systems GMM Panel Data Approach and Structural Breaks," MPRA Paper 15030, University Library of Munich, Germany.

    More about this item

    Keywords

    eynesian and neo classical models; aggregate demand and supply; monetary policy rule; price adjustments; stabilization policy;

    JEL classification:

    • E - Macroeconomics and Monetary Economics

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