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The Algebraic Galaxy of Simple Macroeconomic Models: A Hitchhiker’s Guide

Evan C. Tanner ()
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Evan C. Tanner: International Monetary Fund

Open Economies Review, 2018, vol. 29, issue 1, 177-209

Abstract: Abstract Simple macroeconomic frameworks like the IS/LM have survived because they help us conceptualize complex problems while also providing ‘back of the envelope’ estimates of macroeconomic outcomes. Herein, a bare-bones New Keynesian extension of the IS/LM model yields solutions for core macro variables (output gap, inflation, interest rate, real exchange rate misvaluation)—expressed in percent. We then extend that standard model to also generate a corresponding set of demand-side elements—expressed in currency units. A key aim of the paper is to reconcile these two metrics in ways that also aid communication and intuition—including through IS/LM-style graphs.

Keywords: New Keynesian Model; IS Curve; Taylor Rule; Marshall-Lerner Condition (search for similar items in EconPapers)
JEL-codes: A22 E12 E27 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:kap:openec:v:29:y:2018:i:1:d:10.1007_s11079-017-9445-0