Money and the transmission mechanism in the optimizing IS-LM specification

Edward Nelson

No 2003-019, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This paper discusses criticisms of the IS-LM framework in the macroeconomic literature of the last 40 years, and how the modern optimizing version of IS-LM addresses those criticisms. It is argued that many of the criticisms had been addressed by best-practice traditional IS-LM. Relative to this traditional setup, the optimizing IS-LM version gives full recognition to the intertemporal nature of households' saving decisions. Like traditional IS-LM, however, the optimizing version remains vulnerable to the monetarist critique: by recognizing an insufficient number of distinct assets, the IS-LM framework tends to understate the value of money as an indicator for monetary policy.

Keywords: Money; Monetary policy; Macroeconomics (search for similar items in EconPapers)
Date: 2003
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Money and the Transmission Mechanism in the Optimizing IS-LM Specification (2004)
Working Paper: Money and the Transmission Mechanism in the Optimizing IS-LM Specification (2003)
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DOI: 10.20955/wp.2003.019

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