EconoMonitor

An IS-LM Model That Almost Has It All

There is an ongoing debate in the blogosphere on the usefulness of the IS-LM model taught in undergraduate economics.  Brad DeLong nicely summarizes the problems with this model:

We really need a model with five moving pieces:

  1. Money demand equilibrium M = L(i, PY) as a function of the level of spending and the short-term safe nominal interest rate.

  2. Flow-of-funds S = I + (G-T) as a function of the level of spending and the long-term risky real interest rate.

  3. Expected inflation to get you from the nominal to the real interest rate.

  4. A term premium as a function of expectations to get you from the short-term to the long-term real interest rate.

  5. Risk spreads to get you from the safe to the risky real interest rate.

Well Brad, there actually is such an undergraduate IS-LM model that fufills most of these criteria.  It is developed by Charles L. Weise and Robert J. Barbera in this paper here.  It incorporates the short-term policy rate, the natural interest rate, the long-term risky real interest rate, the term premium, the risk premium, and the term structure of interest rates.  The model has an IS curve, an AS curve, and a TS or term structure curve.  The model can also be easily drawn in (r, Y) space. The big drawback is that money and its importance for recessions–money is the one asset one every market and thus the one asset that can disrupt every market–is ignored.  Still, the Weise-Barbera IS-LM model is still a vast improvement over the standard undergraduate IS-LM.  Do take a look.
This post originally appeared at Macro and Other Market Musings and is reproduced with permission.

52 Responses to “An IS-LM Model That Almost Has It All”

Me Too Shoes saleOctober 20th, 2011 at 2:06 am

Its like you read my mind! You seem to know a lot about this, like you wrote the book in it or something. I think that you could do with a few pics to drive the message home a bit, but instead of that, this is great blog. An excellent read. I will definitely be back.

Rooting Android PhoneOctober 20th, 2011 at 7:11 am

A lot of thanks for all of your work on this website. My mum really loves getting into investigation and it’s easy to see why. A number of us hear all relating to the compelling way you give useful tricks via this blog and therefore increase participation from other people on this subject matter plus my princess has always been starting to learn so much. Have fun with the rest of the year. You are conducting a tremendous job.

Bonsmara SAOctober 25th, 2011 at 5:44 am

What you have here it is a great piece of information. But first of all I must salute all every one. . After this I must say that I m going to post http://www.economonitor.com/blog/2011/10/an-is-lm… on my Twitter profile. I will do this because in the end I found what I was looking for. What you post here is really nice information. When I saw this tittle, EconoMonitor : EconoMonitor » An IS-LM Model That Almost Has It All, on my google search I was very glad. I think I found something that have the same ideea here http://www.bonsmara.za.org, I’m not sure but I thing it was the same. My regrds

traduceriOctober 26th, 2011 at 9:22 pm

This it is a great piece of information this is the reason why I post a link to you in one of my site your link is here . But first of all I must salute all the visitors. Hello. And now I must say that I m thinking to post http://www.economonitor.com/blog/2011/10/an-is-lm… on my Hi5 profile. I will do this because finally I found what I was looking for. What you share here is really very good sharing. In the second I saw this tittle, EconoMonitor : EconoMonitor » An IS-LM Model That Almost Has It All, in my google search I was very glad. I think I found something with the same ideea here http://www.toplevel-traduceri.ro, I’m not sure but I thing it was the same. My regrds

blu ray dvd moviesOctober 28th, 2011 at 10:49 pm

Fantastic analysis from you. We’ve read your stuff before and you’re just too awesome. I love what you’ve got here, love what you’re saying and the way you say it. You make it entertaining and you still manage to keep it intelligent. I can’t wait to read more from you. this is truly a good site.

TravisOctober 29th, 2011 at 9:48 am

I’m delighted that I’ve noticed this weblog. Finally anything not a junk, which we undergo extremely frequently. The web site is lovingly serviced and kept up to date. So it have to be, thanks for sharing this with us.

bilete avionOctober 29th, 2011 at 9:48 am

This it is an interesting article. But first of all I must salute all every one. . And second I must say that I m going to post http://www.economonitor.com/blog/2011/10/an-is-lm… on my Hi5 profile. I will do this because at last I found what I was looking for. What you post here is really good information. In the second I saw this tittle, EconoMonitor : EconoMonitor » An IS-LM Model That Almost Has It All, on google search I was very happy. It is possible I found something like this here http://www.xbileteavion.ro, I’m not sure but I thing it was the same. Thank you

homeOctober 29th, 2011 at 10:50 am

Definitely one of the challenges which individuals starting a new on-line company face is that of obtaining visitors to their net site.

Steven ModenaOctober 29th, 2011 at 12:23 pm

What i do not realize is actually how you are not really much more well-liked than you might be now. You are very intelligent. You realize therefore significantly relating to this subject, made me personally consider it from numerous varied angles. Its like men and women aren’t fascinated unless it’s one thing to accomplish with Lady gaga! Your own stuffs outstanding. Always maintain it up!

Liverpool solicitorOctober 29th, 2011 at 7:57 pm

Today, I went to the beachfront with my children. I found a sea shell and gave it to my 4 year old daughter and said “You can hear the ocean if you put this to your ear.” She put the shell to her ear and screamed. There was a hermit crab inside and it pinched her ear. She never wants to go back! LoL I know this is totally off topic but I had to tell someone!

laser hair removal north londonOctober 29th, 2011 at 8:44 pm

Does your blog have a contact page? I’m having a tough time locating it but, I’d like to shoot you an email. I’ve got some suggestions for your blog you might be interested in hearing. Either way, great blog and I look forward to seeing it grow over time.

FulhamOctober 29th, 2011 at 8:57 pm

Woah! I’m really enjoying the template/theme of this blog. It’s simple, yet effective. A lot of times it’s hard to get that “perfect balance” between superb usability and visual appearance. I must say that you’ve done a fantastic job with this. In addition, the blog loads super fast for me on Firefox. Superb Blog!

plumber West KirbyOctober 29th, 2011 at 9:10 pm

Do you have a spam problem on this blog; I also am a blogger, and I was wondering your situation; many of us have developed some nice methods and we are looking to swap methods with others, be sure to shoot me an e-mail if interested.

online travel sitesOctober 29th, 2011 at 10:31 pm

I wish to show my thanks to you just for bailing me out of this condition. After searching throughout the search engines and coming across strategies that were not helpful, I believed my life was well over. Existing without the strategies to the issues you have fixed all through your main guideline is a crucial case, as well as the kind which may have in a negative way damaged my entire career if I had not come across your web blog. Your main competence and kindness in maneuvering the whole lot was important. I am not sure what I would have done if I had not encountered such a subject like this. I can at this time look forward to my future. Thanks for your time very much for your professional and result oriented help. I won’t hesitate to propose the blog to any person who needs and wants support about this situation.

romance novelOctober 30th, 2011 at 1:48 am

Hiya very nice website!! Guy .. Beautiful .. Superb .. I’ll bookmark your web site and take the feeds additionally…I’m satisfied to seek out so many helpful info right here in the submit, we’d like work out more strategies in this regard, thank you for sharing.

Teak Wine CabinetOctober 30th, 2011 at 9:48 am

EconoMonitor : EconoMonitor » An IS-LM Model That Almost Has It All I am typically to running a blog and i actually respect your content. The article has actually peaks my interest. I am going to bookmark your website and hold checking for brand new information. Regards, Teak Wine Cabinet

ASHOLE LUOctober 30th, 2011 at 5:32 pm

An intriguing communicating is couturier scuttlebutt. I anticipate that you should create solon on this matter, it mightiness not be a bias content but generally group are not enough to verbalise on much topics. To the succeeding. Cheers like your EconoMonitor : EconoMonitor » An IS-LM Model That Almost Has It All.

P90X yogaOctober 30th, 2011 at 6:49 pm

you are really a good webmaster. The website loading speed is incredible. It seems that you are doing any unique trick. Moreover, The contents are masterpiece. you have done a fantastic job on this topic!

traduceri engleza romanaOctober 31st, 2011 at 12:52 am

What you have here it is a great piece of information. But first of all I must say all every one. Hy. And second I must say that I will post http://www.economonitor.com/blog/2011/10/an-is-lm… on my Twitter profile. And this because finally I found what I was looking for. What you give us here is really very good sharing. In the minute I saw this tittle, EconoMonitor : EconoMonitor » An IS-LM Model That Almost Has It All, on google search I was very glad. Maybe I found something that have the same ideea here http://www.toplevel-traduceri.ro, I’m not sure but I thing it was the same. My regrds

Dewalt Impact DriverOctober 31st, 2011 at 2:24 am

I have merely began with my own website and I really like this template. Is it free or a version of those premium templates? Sorry, I am new to this and simply in search of ideas. BTW, I check out your site almost everyday.

Surrey Invisalign dentistOctober 31st, 2011 at 5:49 am

Attractive section of content. I simply stumbled upon your site and in accession capital to say that I get in fact loved account your weblog posts. Anyway I will be subscribing in your feeds and even I success you get right of entry to consistently fast.

Teressa BergeyOctober 31st, 2011 at 5:56 am

I have been surfing online more than three hours today, yet I never found any interesting article like yours. It is pretty worth enough for me. In my view, if all website owners and bloggers made good content as you did, the web will be much more useful than ever before.

download apkOctober 31st, 2011 at 7:05 am

I got what you think, thanks for putting up. Woh I am pleased to judge this website finished google. Thanks For Share EconoMonitor : EconoMonitor » An IS-LM Model That Almost Has It All.

herbal remediesOctober 31st, 2011 at 7:05 am

Excellent goods from you, man. EconoMonitor : EconoMonitor » An IS-LM Model That Almost Has It All I’ve understand your stuff previous to and you’re just too magnificent. I really like what you have acquired here, really like what you are saying and the way in which you say it. You make it enjoyable and you still take care of to keep it wise. I can’t wait to read much more from you. This is really a terrific EconoMonitor : EconoMonitor » An IS-LM Model That Almost Has It All informations.

rent a diggerOctober 31st, 2011 at 9:46 am

Nice post. I was checking constantly this weblog and I’m inspired! Very useful info particularly the final part :) I deal with such information much. I used to be looking for this certain info for a very lengthy time. Thank you and good luck.

Laptop Repair ManchesterOctober 31st, 2011 at 10:28 am

Thanks, I have just been searching for information about this topic for a long time and yours is the best I have discovered so far. But, what concerning the conclusion? Are you positive concerning the supply?

Most Read | Featured | Popular

Blogger Spotlight

Edward Hugh Don't Shoot the Messenger

Edward is a macro economist, who specializes in growth and productivity theory, demographic processes and their impact on macro performance, and the underlying dynamics of migration flows. Edward is based in Barcelona, and is currently engaged in research on aging, longevity, fertility and migration, and the impact of all of these on economic growth.

Economics Blog Aggregator

Our favorite economics blogs aggregated.