On 'Money' in ISLM and AD/AS Models

Thomas Rymes and Colin Rogers ()
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Colin Rogers: School of Economics, University of Adelaide

No 2000-02, School of Economics and Public Policy Working Papers from University of Adelaide, School of Economics and Public Policy

Abstract: Hicks's ISLM model interpretation of Keynes's theory is subject to much controversy. In this paper, we focus upon the 'real balance' effect and its role in ISLM and AD/AS analyses. We shall argue that ISLM and AD/AS require 'nominal anchors'. We live in a world where, increasingly, the 'money' in the ISLM and AD/AS model no longer exists (as Keynes imperfectly understood in his TREATISE ON MONEy). There are no longer any nominal anchors, rather they have been replaced by discretionary policy. As Professor Ferris nicely sums up our position, we argue that central banks are fundamentals.

Pages: 18 pages
Date: 2000
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Related works:
Working Paper: On 'Money' in ISLM and AD/AS Models (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:adl:wpaper:2000-02

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