Rethinking the IS in IS-LM: adapting Keynesian tools to non-Keynesian economies Part 1

Evan Koenig

Economic and Financial Policy Review, 1993, issue Sep, 32-50

Abstract: The IS-LM diagram was developed as a tool for analyzing Keynesian economies-economies with \"sticky\" prices and myopic households. In a series of two articles, Evan Koenig shows that a graphical apparatus similar to the traditional IS-LM diagram can be used to analyze economies that have optimizing, forward-looking households. In particular, an expectations-augmented variant of IS-LM analysis is fully consistent with a popular real-business-cycle model. Thus, the IS-LM diagram has wide applicability as a pedagogical device and as a framework within which to discuss policy. ; This article deals with an economy in which the capital stock is fixed. A subsequent article will discuss how the expectations-augmented IS-LM framework developed here can be extended to an economy with capital investment.

Keywords: Macroeconomics (search for similar items in EconPapers)
Date: 1993
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Citations: View citations in EconPapers (3)

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