IS–LM model - Revision history

Citation bot: Altered pages. Added doi. Formatted dashes. Upgrade ISBN10 to 13. | Use this bot. Report bugs. | Suggested by Abductive | Category:Economics curves | #UCB_Category 5/44

2024-04-03T03:38:02Z

Altered pages. Added doi. Formatted dashes. Upgrade ISBN10 to 13. | Use this bot. Report bugs. | Suggested by Abductive | Category:Economics curves | #UCB_Category 5/44

← Previous revision		Revision as of 03:38, 3 April 2024
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	* {{cite book \|last=Barro \|first=Robert J. \|author-link=Robert Barro \|chapter=The Keynesian Theory of Business Fluctuations \|title=Macroeconomics \|location=New York \|publisher=John Wiley \|year=1984 \|isbn=978-0-471-87407-2 \|pages=[https://archive.org/details/macroeconomics00barr/page/487 487–513] \|chapter-url=https://archive.org/details/macroeconomics00barr/page/487 }}		* {{cite book \|last=Barro \|first=Robert J. \|author-link=Robert Barro \|chapter=The Keynesian Theory of Business Fluctuations \|title=Macroeconomics \|location=New York \|publisher=John Wiley \|year=1984 \|isbn=978-0-471-87407-2 \|pages=[https://archive.org/details/macroeconomics00barr/page/487 487–513] \|chapter-url=https://archive.org/details/macroeconomics00barr/page/487 }}
	* {{cite book \|last1=Blanchard \|first1=Olivier \| author-link=Olivier Blanchard \|chapter=Goods and Financial Markets: The IS-LM Model \|title=Macroeconomics \|date=2021 \|publisher=Pearson \|location=Harlow, England \|isbn=978-0-134-89789-9 \|edition=Eighth, global \|pages=~~107-126~~}}		* {{cite book \|last1=Blanchard \|first1=Olivier \| author-link=Olivier Blanchard \|chapter=Goods and Financial Markets: The IS-LM Model \|title=Macroeconomics \|date=2021 \|publisher=Pearson \|location=Harlow, England \|isbn=978-0-134-89789-9 \|edition=Eighth, global \|pages=107–126}}
	* {{cite journal \|last=Hicks \|first=J. R. \| author-link=John Hicks \|year=1937 \|title=Mr. Keynes and the 'Classics': A Suggested Interpretation \|journal=[[Econometrica]] \|volume=5 \|issue=2 \|pages=147–159 \|jstor= 1907242\|doi=10.2307/1907242}}		* {{cite journal \|last=Hicks \|first=J. R. \| author-link=John Hicks \|year=1937 \|title=Mr. Keynes and the 'Classics': A Suggested Interpretation \|journal=[[Econometrica]] \|volume=5 \|issue=2 \|pages=147–159 \|jstor= 1907242\|doi=10.2307/1907242}}
	* {{cite news \|last=Krugman \|first=Paul \| author-link=Paul Krugman \|date=2011-10-09 \|title=IS-LMentary \|url=https://krugman.blogs.nytimes.com/2011/10/09/is-lmentary/ \|work=The New York Times \|access-date=2020-10-01}}		* {{cite news \|last=Krugman \|first=Paul \| author-link=Paul Krugman \|date=2011-10-09 \|title=IS-LMentary \|url=https://krugman.blogs.nytimes.com/2011/10/09/is-lmentary/ \|work=The New York Times \|access-date=2020-10-01}}
	* {{cite book \|last=Leijonhufvud \|first=Axel \|author-link=Axel Leijonhufvud \|editor-last=Fitoussi \|editor-first=Jean-Paul \|editor-link=Jean-Paul Fitoussi \|chapter=What is Wrong with IS/LM? \|title=Modern Macroeconomic Theory \|location=Oxford \|publisher=Blackwell \|year=1983 \|isbn=978-0-631-13158-8 \|pages=[https://archive.org/details/modernmacroecono0000unse/page/49 49–90] \|chapter-url=https://archive.org/details/modernmacroecono0000unse/page/49 }}		* {{cite book \|last=Leijonhufvud \|first=Axel \|author-link=Axel Leijonhufvud \|editor-last=Fitoussi \|editor-first=Jean-Paul \|editor-link=Jean-Paul Fitoussi \|chapter=What is Wrong with IS/LM? \|title=Modern Macroeconomic Theory \|location=Oxford \|publisher=Blackwell \|year=1983 \|isbn=978-0-631-13158-8 \|pages=[https://archive.org/details/modernmacroecono0000unse/page/49 49–90] \|chapter-url=https://archive.org/details/modernmacroecono0000unse/page/49 }}
	* {{cite book \|last1=Mankiw \|first1=Nicholas Gregory \|author-link=Greg Mankiw \|chapter=Aggregate Demand I+II \|title=Macroeconomics \|date=2022 \|publisher=Worth Publishers, Macmillan Learning \|location=New York, NY \|isbn=978-1-319-26390-4 \|edition=Eleventh, international \|pages=~~283-334~~}}		* {{cite book \|last1=Mankiw \|first1=Nicholas Gregory \|author-link=Greg Mankiw \|chapter=Aggregate Demand I+II \|title=Macroeconomics \|date=2022 \|publisher=Worth Publishers, Macmillan Learning \|location=New York, NY \|isbn=978-1-319-26390-4 \|edition=Eleventh, international \|pages=283–334}}
	* {{cite journal \|last1=Romer \|first1=David \| author-link=David Romer \|title=Keynesian Macroeconomics without the LM Curve \|journal=Journal of Economic Perspectives \|date=2000 \|volume=14 \|issue=2 \|pages=149–170 \|doi=10.1257/jep.14.2.149 \|url=https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.14.2.149 \|language=en \|issn=0895-3309}}		* {{cite journal \|last1=Romer \|first1=David \| author-link=David Romer \|title=Keynesian Macroeconomics without the LM Curve \|journal=Journal of Economic Perspectives \|date=2000 \|volume=14 \|issue=2 \|pages=149–170 \|doi=10.1257/jep.14.2.149 \|url=https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.14.2.149 \|language=en \|issn=0895-3309}}
	* {{cite journal \|last=Smith \|first=Warren L. \|title=A Graphical Exposition of the Complete Keynesian System \|journal=[[Southern Economic Journal]] \|volume=23 \|issue=2 \|pages=115–125 \|year=1956 \|doi=10.2307/1053551 \|jstor=1053551 }}		* {{cite journal \|last=Smith \|first=Warren L. \|title=A Graphical Exposition of the Complete Keynesian System \|journal=[[Southern Economic Journal]] \|volume=23 \|issue=2 \|pages=115–125 \|year=1956 \|doi=10.2307/1053551 \|jstor=1053551 }}
	* {{cite book \|editor1-last=Vroey \|editor1-first=Michel de \|editor2-last=Hoover \|editor2-first=Kevin D. \|editor2-link=Kevin Hoover \|title=The IS-LM model: Its Rise, Fall, and Strange Persistence \|location=Durham \|publisher=Duke University Press \|year=2004 \|isbn=978-0-8223-6631-7 }}		* {{cite book \|editor1-last=Vroey \|editor1-first=Michel de \|editor2-last=Hoover \|editor2-first=Kevin D. \|editor2-link=Kevin Hoover \|title=The IS-LM model: Its Rise, Fall, and Strange Persistence \|location=Durham \|publisher=Duke University Press \|year=2004 \|isbn=978-0-8223-6631-7 }}
	* {{cite book \|editor1-last=Young \|editor1-first=Warren \|editor2-last=Zilberfarb \|editor2-first=Ben-Zion \|title=IS-LM and Modern Macroeconomics \|series=Recent Economic Thought \|volume=73 \|url=https://link.springer.com/book/10.1007/978-94-010-0644-6 \|publisher=Springer Science & Business Media \|year=2000 \|isbn=978-0-7923-7966-9 }}		* {{cite book \|editor1-last=Young \|editor1-first=Warren \|editor2-last=Zilberfarb \|editor2-first=Ben-Zion \|title=IS-LM and Modern Macroeconomics \|series=Recent Economic Thought \|volume=73 \|url=https://link.springer.com/book/10.1007/978-94-010-0644-6 \|publisher=Springer Science & Business Media \|year=2000 \|doi=10.1007/978-94-010-0644-6 \|isbn=978-0-7923-7966-9 }}

	==External links==		==External links==

JJMC89 bot III: Moving :Category:1937 in economics to :Category:1937 in economic history per Wikipedia:Categories for discussion/Speedy

2024-02-04T16:47:18Z

Moving Category:1937 in economics to Category:1937 in economic history per Wikipedia:Categories for discussion/Speedy

← Previous revision		Revision as of 16:47, 4 February 2024
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	[[Category:General equilibrium theory]]		[[Category:General equilibrium theory]]
	[[Category:Keynesian economics]]		[[Category:Keynesian economics]]
	[[Category:1937 in ~~economics~~]]		[[Category:1937 in economic history]]

John of Reading: /* Shifts */Typo fixing, replaced: an rightward → a rightward

2023-12-28T16:10:00Z

Shifts: Typo fixing, replaced: an rightward → a rightward

← Previous revision		Revision as of 16:10, 28 December 2023
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	One hypothesis is that a government's [[deficit spending]] ("[[fiscal policy]]") has an effect similar to that of a lower saving rate or increased private fixed investment, increasing the amount of demand for goods at each individual interest rate. An increased deficit by the national government shifts the IS curve to the right. This raises the equilibrium interest rate (from i<sub>1</sub> to i<sub>2</sub>) and national income (from Y<sub>1</sub> to Y<sub>2</sub>), as shown in the graph above. The equilibrium level of national income in the IS–LM diagram is referred to as [[aggregate demand]].		One hypothesis is that a government's [[deficit spending]] ("[[fiscal policy]]") has an effect similar to that of a lower saving rate or increased private fixed investment, increasing the amount of demand for goods at each individual interest rate. An increased deficit by the national government shifts the IS curve to the right. This raises the equilibrium interest rate (from i<sub>1</sub> to i<sub>2</sub>) and national income (from Y<sub>1</sub> to Y<sub>2</sub>), as shown in the graph above. The equilibrium level of national income in the IS–LM diagram is referred to as [[aggregate demand]].

	Keynesians argue spending may actually "crowd in" (encourage) private fixed investment via the [[accelerator effect]], which helps long-term growth. Further, if government deficits are spent on productive public investment (e.g., infrastructure or public health) that spending directly and eventually raises potential output, although not necessarily more (or less) than the lost private investment might have. The extent of any crowding out depends on the shape of the LM curve. A shift in the IS curve along a relatively flat LM curve can increase output substantially with little change in the interest rate. On the other hand, an rightward shift in the IS curve along a vertical LM curve will lead to higher interest rates, but no change in output (this case represents the "[[Treasury view]]").		Keynesians argue spending may actually "crowd in" (encourage) private fixed investment via the [[accelerator effect]], which helps long-term growth. Further, if government deficits are spent on productive public investment (e.g., infrastructure or public health) that spending directly and eventually raises potential output, although not necessarily more (or less) than the lost private investment might have. The extent of any crowding out depends on the shape of the LM curve. A shift in the IS curve along a relatively flat LM curve can increase output substantially with little change in the interest rate. On the other hand, a rightward shift in the IS curve along a vertical LM curve will lead to higher interest rates, but no change in output (this case represents the "[[Treasury view]]").

	Rightward shifts of the IS curve also result from [[exogeny\|exogenous]] increases in investment spending (i.e., for reasons other than interest rates or income), in consumer spending, and in export spending by people outside the economy being modelled, as well as by exogenous decreases in spending on imports. Thus these too raise both equilibrium income and the equilibrium interest rate. Of course, changes in these variables in the opposite direction shift the IS curve in the opposite direction.		Rightward shifts of the IS curve also result from [[exogeny\|exogenous]] increases in investment spending (i.e., for reasons other than interest rates or income), in consumer spending, and in export spending by people outside the economy being modelled, as well as by exogenous decreases in spending on imports. Thus these too raise both equilibrium income and the equilibrium interest rate. Of course, changes in these variables in the opposite direction shift the IS curve in the opposite direction.

WikiCleanerBot: v2.05b - Bot T20 CW#61 - Fix errors for CW project (Reference before punctuation)

2023-11-28T06:36:35Z

v2.05b - Bot T20 CW#61 - Fix errors for CW project (Reference before punctuation)

← Previous revision		Revision as of 06:36, 28 November 2023
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	The IS–LM model was introduced at a conference of the [[Econometric Society]] held in Oxford during September 1936. [[Roy Harrod]], [[John Hicks\|John R. Hicks]], and [[James Meade]] all presented papers		The IS–LM model was introduced at a conference of the [[Econometric Society]] held in Oxford during September 1936. [[Roy Harrod]], [[John Hicks\|John R. Hicks]], and [[James Meade]] all presented papers
	describing [[mathematical model]]s attempting to summarize [[John Maynard Keynes]]' ''[[General Theory of Employment, Interest, and Money]]''.<ref name="Hicks1937" /><ref>{{cite journal \|last=Meade \|first=J. E. \|title=A Simplified Model of Mr. Keynes' System \|journal=[[Review of Economic Studies]] \|volume=4 \|issue=2 \|pages=98–107 \|year=1937 \|jstor=2967607 \|doi=10.2307/2967607 }}</ref> Hicks, who had seen a draft of Harrod's paper, invented the IS–LM model (originally using the [[abbreviation]] "LL", not "LM"). He later presented it in		describing [[mathematical model]]s attempting to summarize [[John Maynard Keynes]]' ''[[General Theory of Employment, Interest, and Money]]''.<ref name="Hicks1937" /><ref>{{cite journal \|last=Meade \|first=J. E. \|title=A Simplified Model of Mr. Keynes' System \|journal=[[Review of Economic Studies]] \|volume=4 \|issue=2 \|pages=98–107 \|year=1937 \|jstor=2967607 \|doi=10.2307/2967607 }}</ref> Hicks, who had seen a draft of Harrod's paper, invented the IS–LM model (originally using the [[abbreviation]] "LL", not "LM"). He later presented it in
	"Mr. Keynes and the Classics: A Suggested Interpretation".<ref name="Hicks1937">{{cite journal \|last=Hicks \|first=J. R. \|year=1937 \|title=Mr. Keynes and the 'Classics': A Suggested Interpretation \|journal=[[Econometrica]] \|volume=5 \|issue=2 \|pages=147–159 \|jstor= 1907242\|doi=10.2307/1907242}}</ref> Hicks and Alvin Hansen developed the model further in the 1930s and early 1940s<ref name=blanchard/>{{Rp\|527}}, Hansen extending the earlier contribution.<ref>{{cite book \|last=Hansen \|first=A. H. \|year=1953 \|title=A Guide to Keynes \|url=https://archive.org/details/guidetokeynes0000hans \|url-access=registration \|location=New York \|publisher=McGraw Hill \|isbn=9780070260467 }}</ref>		"Mr. Keynes and the Classics: A Suggested Interpretation".<ref name="Hicks1937">{{cite journal \|last=Hicks \|first=J. R. \|year=1937 \|title=Mr. Keynes and the 'Classics': A Suggested Interpretation \|journal=[[Econometrica]] \|volume=5 \|issue=2 \|pages=147–159 \|jstor= 1907242\|doi=10.2307/1907242}}</ref> Hicks and Alvin Hansen developed the model further in the 1930s and early 1940s,<ref name=blanchard/>{{Rp\|527}} Hansen extending the earlier contribution.<ref>{{cite book \|last=Hansen \|first=A. H. \|year=1953 \|title=A Guide to Keynes \|url=https://archive.org/details/guidetokeynes0000hans \|url-access=registration \|location=New York \|publisher=McGraw Hill \|isbn=9780070260467 }}</ref>
	The model became a central tool of macroeconomic teaching for many decades. Between the 1940s and mid-1970s, it was the leading framework of macroeconomic analysis.<ref>{{cite book \|last=Bentolila \|first=Samuel \|chapter=Hicks–Hansen model \|title=An Eponymous Dictionary of Economics: A Guide to Laws and Theorems Named after Economists \|publisher=Edward Elgar \|year=2005 \|isbn=978-1-84376-029-0 }}</ref> It was particularly suited to illustrate the debate of the 1960s and 1970s between Keynesians and monetarists as to whether fiscal or monetary policy was most effective to [[Stabilization policy\|stabilize the economy]]. Later, this issue faded from focus and came to play only a modest role in discussions of short-run fluctuations.<ref name=Romer>{{cite journal \|last1=Romer \|first1=David \|title=Keynesian Macroeconomics without the LM Curve \|journal=Journal of Economic Perspectives \|date=1 May 2000 \|volume=14 \|issue=2 \|pages=149–170 \|doi=10.1257/jep.14.2.149 \|url=https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.14.2.149 \|access-date=9 November 2023 \|language=en \|issn=0895-3309}}</ref>		The model became a central tool of macroeconomic teaching for many decades. Between the 1940s and mid-1970s, it was the leading framework of macroeconomic analysis.<ref>{{cite book \|last=Bentolila \|first=Samuel \|chapter=Hicks–Hansen model \|title=An Eponymous Dictionary of Economics: A Guide to Laws and Theorems Named after Economists \|publisher=Edward Elgar \|year=2005 \|isbn=978-1-84376-029-0 }}</ref> It was particularly suited to illustrate the debate of the 1960s and 1970s between Keynesians and monetarists as to whether fiscal or monetary policy was most effective to [[Stabilization policy\|stabilize the economy]]. Later, this issue faded from focus and came to play only a modest role in discussions of short-run fluctuations.<ref name=Romer>{{cite journal \|last1=Romer \|first1=David \|title=Keynesian Macroeconomics without the LM Curve \|journal=Journal of Economic Perspectives \|date=1 May 2000 \|volume=14 \|issue=2 \|pages=149–170 \|doi=10.1257/jep.14.2.149 \|url=https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.14.2.149 \|access-date=9 November 2023 \|language=en \|issn=0895-3309}}</ref>

Økonom: /* Further reading */ updated to more recent textbooks and some oft-quoted historical contributions, deleted less relevant material as per WP:Further reading

2023-11-27T09:39:18Z

Further reading: updated to more recent textbooks and some oft-quoted historical contributions, deleted less relevant material as per WP:Further reading

← Previous revision		Revision as of 09:39, 27 November 2023
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	==Further reading==		==Further reading==

	* {{cite book \|last=Ackley \|first=Gardner \|author-link=Gardner Ackley \|chapter=The ‘IS–LM’ Form of the Model \|pages=[https://archive.org/details/macroeconomicsth00ackl/page/358 358–383] \|title=Macroeconomics: Theory and Policy \|location=New York \|publisher=Macmillan \|year=1978 \|isbn=978-0-02-300290-8 \|chapter-url=https://archive.org/details/macroeconomicsth00ackl/page/358 }}
	* {{cite book \|last=Barro \|first=Robert J. \|author-link=Robert Barro \|chapter=The Keynesian Theory of Business Fluctuations \|title=Macroeconomics \|location=New York \|publisher=John Wiley \|year=1984 \|isbn=978-0-471-87407-2 \|pages=[https://archive.org/details/macroeconomics00barr/page/487 487–513] \|chapter-url=https://archive.org/details/macroeconomics00barr/page/487 }}		* {{cite book \|last=Barro \|first=Robert J. \|author-link=Robert Barro \|chapter=The Keynesian Theory of Business Fluctuations \|title=Macroeconomics \|location=New York \|publisher=John Wiley \|year=1984 \|isbn=978-0-471-87407-2 \|pages=[https://archive.org/details/macroeconomics00barr/page/487 487–513] \|chapter-url=https://archive.org/details/macroeconomics00barr/page/487 }}
	* {{cite book \|~~last~~=~~Darby~~ \|~~first~~=~~Michael~~ R. \|chapter=~~The~~ ~~Complete~~ ~~Keynesian~~ Model ~~\|pages=285–304~~ \|title=Macroeconomics \|~~location~~=~~New York~~ \|publisher=~~McGraw-Hill~~ \|~~year~~=~~1976~~ \|isbn=978-0-07-~~015346~~-2 }}		* {{cite book \|last1=Blanchard \|first1=Olivier \| author-link=Olivier Blanchard \|chapter=Goods and Financial Markets: The IS-LM Model \|title=Macroeconomics \|date=2021 \|publisher=Pearson \|location=Harlow, England \|isbn=978-0-134-89789-9 \|edition=Eighth, global \|pages=107-126}}
	* {{cite journal \|last=~~Farmer~~ \|first=~~Roger E~~. A. \| author-link=~~Roger~~ ~~Farmer~~ \| title=~~Confidence,~~ ~~crashes,~~ and ~~animal~~ ~~spirits~~ \|journal=[[~~The Economic Journal~~]] \|volume=~~122~~ \| issue = ~~559~~ \|pages=~~155–172~~ \|~~year~~=~~2012~~ \|doi=10.~~1111~~/~~j.1468-0297.2011.02474.x\|s2cid=16986435 \|url=https://economicdynamics.org/meetpapers/2011/paper_603.pdf~~ }}		* {{cite journal \|last=Hicks \|first=J. R. \| author-link=John Hicks \|year=1937 \|title=Mr. Keynes and the 'Classics': A Suggested Interpretation \|journal=[[Econometrica]] \|volume=5 \|issue=2 \|pages=147–159 \|jstor= 1907242\|doi=10.2307/1907242}}
	* {{cite journal \|last1=Farmer \|first1=Roger E. A. \| author-link=Roger Farmer \| last2=Platonov \|first2=Konstantin \|title=Animal spirits in a monetary model \|journal=[[European Economic Review]] \|volume=115 \|pages=60–77 \|year=2019 \|doi=10.1016/j.euroecorev.2019.02.005\|s2cid=55928575 \|url=http://www.nber.org/papers/w22136.pdf }}
	* {{cite news \|last=Farmer \|first=Roger E. A. \| author-link=Roger Farmer \|date=2016-09-02 \|title=Reinventing IS-LM: The IS-LM-NAC model and how to use it \|url=https://voxeu.org/article/reinventing-lm-explain-secular-stagnation \|work=Vox EU \|access-date=2020-10-01}}
	* {{cite book \|last1=Dernburg \|first1=Thomas F. \|last2=McDougall \|first2=Duncan M. \|chapter=Macroeconomic Equilibrium: The Level of Economic Activity \|pages=53–229 \|title=Macroeconomics \|location=New York \|publisher=McGraw-Hill \|edition=Sixth \|year=1980 \|isbn=978-0-07-016534-2 }}
	* {{cite book \|last=Keiser \|first=Norman F. \|chapter=The Real-Goods and Monetary Spheres \|title=Macroeconomics \|location=New York \|publisher=Random House \|edition=Second \|year=1975 \|isbn=978-0-394-31922-3 \|pages=231–260 }}
	* {{cite news \|last=Krugman \|first=Paul \| author-link=Paul Krugman \|date=2011-10-09 \|title=IS-LMentary \|url=https://krugman.blogs.nytimes.com/2011/10/09/is-lmentary/ \|work=The New York Times \|access-date=2020-10-01}}		* {{cite news \|last=Krugman \|first=Paul \| author-link=Paul Krugman \|date=2011-10-09 \|title=IS-LMentary \|url=https://krugman.blogs.nytimes.com/2011/10/09/is-lmentary/ \|work=The New York Times \|access-date=2020-10-01}}
	* {{cite book \|last=Leijonhufvud \|first=Axel \|author-link=Axel Leijonhufvud \|editor-last=Fitoussi \|editor-first=Jean-Paul \|editor-link=Jean-Paul Fitoussi \|chapter=What is Wrong with IS/LM? \|title=Modern Macroeconomic Theory \|location=Oxford \|publisher=Blackwell \|year=1983 \|isbn=978-0-631-13158-8 \|pages=[https://archive.org/details/modernmacroecono0000unse/page/49 49–90] \|chapter-url=https://archive.org/details/modernmacroecono0000unse/page/49 }}		* {{cite book \|last=Leijonhufvud \|first=Axel \|author-link=Axel Leijonhufvud \|editor-last=Fitoussi \|editor-first=Jean-Paul \|editor-link=Jean-Paul Fitoussi \|chapter=What is Wrong with IS/LM? \|title=Modern Macroeconomic Theory \|location=Oxford \|publisher=Blackwell \|year=1983 \|isbn=978-0-631-13158-8 \|pages=[https://archive.org/details/modernmacroecono0000unse/page/49 49–90] \|chapter-url=https://archive.org/details/modernmacroecono0000unse/page/49 }}
	* {{cite book \|~~last~~=Mankiw \|~~first~~=N. Gregory \|author-link=~~N. Gregory~~ Mankiw \|chapter=Aggregate Demand I+II \|title=Macroeconomics \|~~location~~=~~London~~ \|publisher=~~Palgrave~~ Macmillan \|~~edition~~=~~Eighth~~ ~~international~~ ~~\|year=2013~~ \|isbn=978-1-~~4641~~-~~2167~~-8 \|~~pages~~=~~301–352~~ }}		* {{cite book \|last1=Mankiw \|first1=Nicholas Gregory \|author-link=Greg Mankiw \|chapter=Aggregate Demand I+II \|title=Macroeconomics \|date=2022 \|publisher=Worth Publishers, Macmillan Learning \|location=New York, NY \|isbn=978-1-319-26390-4 \|edition=Eleventh, international \|pages=283-334}}
			* {{cite journal \|last1=Romer \|first1=David \| author-link=David Romer \|title=Keynesian Macroeconomics without the LM Curve \|journal=Journal of Economic Perspectives \|date=2000 \|volume=14 \|issue=2 \|pages=149–170 \|doi=10.1257/jep.14.2.149 \|url=https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.14.2.149 \|language=en \|issn=0895-3309}}
	* {{cite book \|last=Sawyer \|first=John A. \|chapter=A Model from Keynes's ''General Theory'' \|title=Macroeconomic Theory \|location=New York \|publisher=Harvester Wheatsheaf \|year=1989 \|isbn=978-0-7450-0555-3 \|pages=62–95 }}
	* {{cite journal \|last=Smith \|first=Warren L. \|title=A Graphical Exposition of the Complete Keynesian System \|journal=[[Southern Economic Journal]] \|volume=23 \|issue=2 \|pages=115–125 \|year=1956 \|doi=10.2307/1053551 \|jstor=1053551 }}		* {{cite journal \|last=Smith \|first=Warren L. \|title=A Graphical Exposition of the Complete Keynesian System \|journal=[[Southern Economic Journal]] \|volume=23 \|issue=2 \|pages=115–125 \|year=1956 \|doi=10.2307/1053551 \|jstor=1053551 }}
	* {{cite book \|editor1-last=Vroey \|editor1-first=Michel de \|editor2-last=Hoover \|editor2-first=Kevin D. \|editor2-link=Kevin Hoover \|title=The IS-LM model: Its Rise, Fall, and Strange Persistence \|location=Durham \|publisher=Duke University Press \|year=2004 \|isbn=978-0-8223-6631-7 }}		* {{cite book \|editor1-last=Vroey \|editor1-first=Michel de \|editor2-last=Hoover \|editor2-first=Kevin D. \|editor2-link=Kevin Hoover \|title=The IS-LM model: Its Rise, Fall, and Strange Persistence \|location=Durham \|publisher=Duke University Press \|year=2004 \|isbn=978-0-8223-6631-7 }}
	* {{cite book \|editor1-last=Young \|editor1-first=Warren \|editor2-last=Zilberfarb \|editor2-first=Ben-Zion \|title=IS-LM and Modern Macroeconomics \|series=Recent Economic Thought \|volume=73 \|publisher=Springer Science & Business Media \|year=2000 \|isbn=978-0-7923-7966-9 }}		* {{cite book \|editor1-last=Young \|editor1-first=Warren \|editor2-last=Zilberfarb \|editor2-first=Ben-Zion \|title=IS-LM and Modern Macroeconomics \|series=Recent Economic Thought \|volume=73 \|url=https://link.springer.com/book/10.1007/978-94-010-0644-6 \|publisher=Springer Science & Business Media \|year=2000 \|isbn=978-0-7923-7966-9 }}

	==External links==		==External links==

Økonom: added description of modern interpretation of monetary policy to lead, shortened repetitive statements

2023-11-24T15:46:34Z

added description of modern interpretation of monetary policy to lead, shortened repetitive statements

← Previous revision		Revision as of 15:46, 24 November 2023
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	{{Short description\|Macroeconomic model relating interest rates and asset market}}		{{Short description\|Macroeconomic model relating interest rates and asset market}}
	[[File:Islm.svg\|thumb\|270px\|The IS curve moves to the right, causing higher interest rates (i) and expansion in the "real" economy (real GDP, or Y)]]{{Macroeconomics sidebar}}		[[File:Islm.svg\|thumb\|270px\|The IS curve moves to the right, causing higher interest rates (i) and expansion in the "real" economy (real GDP, or Y)]]{{Macroeconomics sidebar}}
	The '''IS–LM model''', or '''Hicks–Hansen model''', is a two-dimensional [[macroeconomic]] tool ~~that~~ shows the relationship between [[interest ~~rates~~]] and [[~~Asset~~ ~~markets~~\|~~assets market~~]] ~~(also~~ ~~known~~ as ~~real output~~ in ~~goods and services market plus~~ [[~~money~~ ~~market~~]]). The intersection of the "[[Investment (macroeconomics)\|investment]]–[[National saving\|saving]]" (IS) and "[[liquidity preference]]–[[money supply]]" (LM) curves ~~models~~ "general equilibrium" where supposed simultaneous equilibria occur in both the goods and the ~~asset~~ markets. ~~Two~~ ~~equivalent~~ ~~interpretations~~ ~~are~~ ~~possible:~~ ~~first,~~ the ~~IS–LM~~ ~~model~~ ~~explains~~ changes in [[national income]] ~~when~~ the price level is fixed in ~~the~~ ~~short-run;~~ ~~second~~, the ~~IS–LM~~ model ~~shows~~ ~~why~~ an ~~[[aggregate~~ ~~demand~~ ~~curve]]~~ ~~can~~ ~~shift.~~ ~~Hence,~~ ~~this~~ ~~tool~~ is used ~~not~~ ~~only~~ to ~~analyse~~ ~~economic~~ ~~fluctuations~~ ~~but~~ ~~also~~ to ~~suggest~~ ~~potential~~ ~~levels~~ ~~for~~ ~~appropriate~~ ~~stabilisation~~ ~~policies~~.		The '''IS–LM model''', or '''Hicks–Hansen model''', is a two-dimensional [[macroeconomic model]] which is used as a pedagogical tool in macroeconomic teaching. The IS–LM model shows the relationship between [[interest rate]]s and [[Output (economics)\|output]] in the short run in a [[closed economy]]. The intersection of the "[[Investment (macroeconomics)\|investment]]–[[National saving\|saving]]" (IS) and "[[liquidity preference]]–[[money supply]]" (LM) curves illustrates a "[[General equilibrium theory\|general equilibrium]]" where supposed simultaneous equilibria occur in both the goods and the money markets. The IS–LM model shows the importance of various [[demand shock]]s (including the effects of [[monetary policy]] and [[fiscal policy]]) on output and consequently offers an explanation of changes in [[national income]] in the short run when [[price level\|prices]] are fixed or [[Nominal rigidity\|sticky]]. Hence, the model can be used as a tool to suggest potential levels for appropriate stabilisation policies. It is also used as a building block for the demand side of the economy in more comprehensive models like the [[AD–AS model]].

	The model was developed by [[John Hicks]] in 1937 and was later extended by [[Alvin Hansen]] as a mathematical representation of [[Keynesian economics\|Keynesian macroeconomic theory]]. Between the 1940s and mid-1970s, it was the leading framework of macroeconomic analysis. ~~While~~ it ~~has~~ ~~been~~ ~~largely~~ ~~absent~~ ~~from~~ ~~macroeconomic~~ ~~research ever since, it~~ is ~~still~~ a ~~backbone~~ ~~conceptual~~ ~~introductory~~ ~~tool~~ in ~~many~~ ~~macroeconomics~~ ~~textbooks.~~ By ~~itself~~, ~~the~~ ~~IS–LM model~~ is ~~used~~ to ~~study~~ ~~the~~ ~~short~~ ~~run~~ ~~when~~ ~~[[price~~ ~~level\|prices]]~~ ~~are~~ ~~fixed or sticky and no [[inflation]] is taken into consideration~~. ~~But in practice the main role of the model is as a path to explain the [[AD–AS model]].~~		The model was developed by [[John Hicks]] in 1937 and was later extended by [[Alvin Hansen]] as a mathematical representation of [[Keynesian economics\|Keynesian macroeconomic theory]]. Between the 1940s and mid-1970s, it was the leading framework of macroeconomic analysis. Today, it is generally accepted as being imperfect and is largely absent from teaching at advanced economic levels and from macroeconomic research, but it is still an important pedagogical introductory tool in most undergraduate macroeconomics textbooks.

			As monetary policy since the 1980s and 1990s generally does not try to target money supply as assumed in the original IS–LM model, but instead targets interest rate levels directly, some modern versions of the model have changed the interpretation (and in some cases even the name) of the LM curve, presenting it instead simply as a horizontal line showing the central bank's choice of interest rate. This allows for a simpler dynamic adjustment and supposedly reflects the behaviour of actual contemporary central banks more closely.
	Although generally accepted as being imperfect, the model is seen as a useful pedagogical tool for imparting an understanding of the questions that macroeconomists today attempt to answer through more nuanced approaches. As such, it is included in most undergraduate macroeconomics textbooks.

	==History==		==History==

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← Previous revision		Revision as of 02:28, 24 November 2023
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	==IS–LM model with interest targeting central bank==		==IS–LM model with interest targeting central bank==

	The fact that contemporary central banks normally do not target the money supply, as assumed by the original IS–LM model, but instead conduct their monetary policy by steering the interest rate directly, has led to increasing criticism of the traditional IS–LM setup since 2000 for being outdated and confusing to students. In some textbooks, the traditional LM curve derived from an explicit money market equilibrium story consequently has been replaced by an LM curve simply showing the interest rate level determined by the central bank. Notably this is the case in [[Olivier Blanchard]]'s widely-used<ref name=Courtoy>{{cite web \|last1=Courtoy \|first1=François \|last2=De Vroey \|first2=Michel \|last3=Turati \|first3=Riccardo \|title=What do we teach in Macroeconomics? Evidence of a Theoretical Divide \|url=https://sites.uclouvain.be/econ/DP/IRES/2021023.pdf \|website=sites.uclouvain.be \|publisher=UCLouvain \|access-date=17 November 2023}}</ref> intermediate-level textbook "''Macroeconomics''" since its 7th edition in 2017.<ref name=Davis>{{cite journal \|last1=Davis \|first1=Leila E. \|last2=Gómez-Ramírez \|first2=Leopoldo \|title=Teaching post-intermediate macroeconomics with a dynamic 3-equation model \|journal=The Journal of Economic Education \|date=2 October 2022 \|volume=53 \|issue=4 \|pages=348–367 \|doi=10.1080/00220485.2022.2111385 \|url=https://www.tandfonline.com/doi/full/10.1080/00220485.2022.2111385 \|access-date=17 November 2023 \|language=en \|issn=0022-0485}}</ref>		The fact that contemporary central banks normally do not target the money supply, as assumed by the original IS–LM model, but instead conduct their monetary policy by steering the interest rate directly, has led to increasing criticism of the traditional IS–LM setup since 2000 for being outdated and confusing to students. In some textbooks, the traditional LM curve derived from an explicit money market equilibrium story consequently has been replaced by an LM curve simply showing the interest rate level determined by the central bank. Notably this is the case in [[Olivier Blanchard]]'s widely-used<ref name=Courtoy>{{cite web \|last1=Courtoy \|first1=François \|last2=De Vroey \|first2=Michel \|last3=Turati \|first3=Riccardo \|title=What do we teach in Macroeconomics? Evidence of a Theoretical Divide \|url=https://sites.uclouvain.be/econ/DP/IRES/2021023.pdf \|website=sites.uclouvain.be \|publisher=UCLouvain \|access-date=17 November 2023}}</ref> intermediate-level textbook "''Macroeconomics''" since its 7th edition in 2017.<ref name=Davis>{{cite journal \|last1=Davis \|first1=Leila E. \|last2=Gómez-Ramírez \|first2=Leopoldo \|title=Teaching post-intermediate macroeconomics with a dynamic 3-equation model \|journal=The Journal of Economic Education \|date=2 October 2022 \|volume=53 \|issue=4 \|pages=348–367 \|doi=10.1080/00220485.2022.2111385 \|s2cid=252249958 \|url=https://www.tandfonline.com/doi/full/10.1080/00220485.2022.2111385 \|access-date=17 November 2023 \|language=en \|issn=0022-0485}}</ref>

	In this case, the LM curve becomes horizontal at the interest rate level chosen by the central bank, allowing a simpler kind of dynamics. Also, the interest rate level measured along the vertical axis may be interpreted as either the nominal or the real interest rate, in the latter case allowing inflation to enter the IS–LM model in a simple way. The output level is still determined by the intersection of the IS and LM curves. The LM curve may shift because of a change in monetary policy or possibly a change in inflation expectations, whereas the IS curve as in the traditional model may shift either because of a change in fiscal policy affecting government consumption or taxation, or because of shocks affecting private consumption or investment (or, in the open-economy version, net exports). Additionally, the model distinguishes between the policy interest rate determined by the central bank and the market interest rate which is decisive for firms' investment decisions, and which is equal to the policy interest rate plus a premium which may be interpreted as a risk premium or a measure of the market power or other factors influencing the business strategies of commercial banks. This premium allows for shocks in the financial sector being transmitted to the goods market and consequently affecting aggregate demand.<ref name=blanchard/>{{Rp\|195-201}}		In this case, the LM curve becomes horizontal at the interest rate level chosen by the central bank, allowing a simpler kind of dynamics. Also, the interest rate level measured along the vertical axis may be interpreted as either the nominal or the real interest rate, in the latter case allowing inflation to enter the IS–LM model in a simple way. The output level is still determined by the intersection of the IS and LM curves. The LM curve may shift because of a change in monetary policy or possibly a change in inflation expectations, whereas the IS curve as in the traditional model may shift either because of a change in fiscal policy affecting government consumption or taxation, or because of shocks affecting private consumption or investment (or, in the open-economy version, net exports). Additionally, the model distinguishes between the policy interest rate determined by the central bank and the market interest rate which is decisive for firms' investment decisions, and which is equal to the policy interest rate plus a premium which may be interpreted as a risk premium or a measure of the market power or other factors influencing the business strategies of commercial banks. This premium allows for shocks in the financial sector being transmitted to the goods market and consequently affecting aggregate demand.<ref name=blanchard/>{{Rp\|195-201}}

	Similar models, though called sligthly different names, appear in the textbooks by [[Charles I. Jones\|Charles Jones]]<ref name=araujo>{{cite journal \|last1=de Araujo \|first1=Pedro \|last2=O’Sullivan \|first2=Roisin \|last3=Simpson \|first3=Nicole B. \|title=What Should be Taught in Intermediate Macroeconomics? \|journal=The Journal of Economic Education \|date=January 2013 \|volume=44 \|issue=1 \|pages=74–90 \|doi=10.1080/00220485.2013.740399 \|url=https://www.tandfonline.com/doi/full/10.1080/00220485.2013.740399 \|access-date=17 November 2023 \|language=en \|issn=0022-0485}}</ref> and by [[Wendy Carlin]] and [[David Soskice]]<ref name=Davis/> and the [[CORE Econ]] project.<ref name=Davis/> Parallelly, texts by Akira Weerapana and [[Stephen Williamson (economist)\|Stephen Williamson]] have outlined approaches where the LM curve is replaced with a real interest rate rule.<ref name=araujo/><ref>{{cite journal \|last1=Weerapana \|first1=Akila \|title=Intermediate Macroeconomics without the IS-LM Model \|journal=The Journal of Economic Education \|date=2003 \|volume=34 \|issue=3 \|pages=241–262 \|url=https://www.jstor.org/stable/30042548 \|access-date=18 November 2023 \|issn=0022-0485}}</ref>		Similar models, though called sligthly different names, appear in the textbooks by [[Charles I. Jones\|Charles Jones]]<ref name=araujo>{{cite journal \|last1=de Araujo \|first1=Pedro \|last2=O’Sullivan \|first2=Roisin \|last3=Simpson \|first3=Nicole B. \|title=What Should be Taught in Intermediate Macroeconomics? \|journal=The Journal of Economic Education \|date=January 2013 \|volume=44 \|issue=1 \|pages=74–90 \|doi=10.1080/00220485.2013.740399 \|s2cid=17167083 \|url=https://www.tandfonline.com/doi/full/10.1080/00220485.2013.740399 \|access-date=17 November 2023 \|language=en \|issn=0022-0485}}</ref> and by [[Wendy Carlin]] and [[David Soskice]]<ref name=Davis/> and the [[CORE Econ]] project.<ref name=Davis/> Parallelly, texts by Akira Weerapana and [[Stephen Williamson (economist)\|Stephen Williamson]] have outlined approaches where the LM curve is replaced with a real interest rate rule.<ref name=araujo/><ref>{{cite journal \|last1=Weerapana \|first1=Akila \|title=Intermediate Macroeconomics without the IS-LM Model \|journal=The Journal of Economic Education \|date=2003 \|volume=34 \|issue=3 \|pages=241–262 \|doi=10.1080/00220480309595219 \|jstor=30042548 \|s2cid=144412209 \|url=https://www.jstor.org/stable/30042548 \|access-date=18 November 2023 \|issn=0022-0485}}</ref>

	==Incorporation into larger models==		==Incorporation into larger models==

Økonom: removed citations from lead, inserting them in main text when not already covered by existing references

2023-11-21T16:09:30Z

removed citations from lead, inserting them in main text when not already covered by existing references

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Økonom: added text on IS-LM model with monetary policy determining interest rates instead of money supply, and AD-AS models illustrating inflation instead of price levels

2023-11-20T15:23:33Z

added text on IS-LM model with monetary policy determining interest rates instead of money supply, and AD-AS models illustrating inflation instead of price levels

← Previous revision		Revision as of 15:23, 20 November 2023
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	The IS-LM model assumes a fixed price level and consequently cannot in itself be used to analyze inflation. This was of little importance in the 1950s and early 1960s when inflation was not an important issue, but became problematic with the rising inflation levels in the late 1960s and 1970s, which led to extensions of the model to also incorporate [[aggregate supply]] in some form, e.g. in the form of the [[AD–AS model]], which can be regarded as an IS-LM model with an added supply side explaining rises in the price level.<ref name=Romer/>		The IS-LM model assumes a fixed price level and consequently cannot in itself be used to analyze inflation. This was of little importance in the 1950s and early 1960s when inflation was not an important issue, but became problematic with the rising inflation levels in the late 1960s and 1970s, which led to extensions of the model to also incorporate [[aggregate supply]] in some form, e.g. in the form of the [[AD–AS model]], which can be regarded as an IS-LM model with an added supply side explaining rises in the price level.<ref name=Romer/>

	One of the basic assumptions of the IS-LM model is that the central bank targets the money supply.<ref name=Romer/> However, a fundamental rethinking in central bank policy took place from the early 1990s when central banks generally changed strategies ~~from~~ targeting inflation rather than money growth and using an interest rate rule to achieve their goal.<ref name=blanchard>{{cite book \|last1=Blanchard \|first1=Olivier \|title=Macroeconomics \|date=2021 \|publisher=Pearson \|location=Harlow, England \|isbn=978-0-134-89789-9 \|page=505-509 \|edition=Eighth, global}}</ref>{{Rp\|507}} As central banks started paying little attention to the money supply when deciding on their policy, this model feature became increasingly ~~realistic~~ and sometimes confusing to students.<ref name=Romer/> After 2000, this has led to various modifications to the model, replacing the traditional LM curve and story of the central bank influencing the interest rate level indirectly via controlling the supply of money in the money market to a more realistic one of the central bank determining the policy interest rate as an exogenous variable directly.<ref name=blanchard/><ref ~~name~~=Romer/>		One of the basic assumptions of the IS-LM model is that the central bank targets the money supply.<ref name=Romer/> However, a fundamental rethinking in central bank policy took place from the early 1990s when central banks generally changed strategies towards targeting inflation rather than money growth and using an interest rate rule to achieve their goal.<ref name=blanchard>{{cite book \|last1=Blanchard \|first1=Olivier \|title=Macroeconomics \|date=2021 \|publisher=Pearson \|location=Harlow, England \|isbn=978-0-134-89789-9 \|page=505-509 \|edition=Eighth, global}}</ref>{{Rp\|507}} As central banks started paying little attention to the money supply when deciding on their policy, this model feature became increasingly unrealistic and sometimes confusing to students.<ref name=Romer/> [[David Romer]] in 2000 suggested replacing the traditional IS-LM framework with an [[IS/MP model\|IS-MP]] model, replacing the positively sloped LM curve with a horizontal MP curve (where MP stands for "monetary policy"). He advocated that it had several advantages compared to the traditional IS-LM model.<ref name=Romer/> [[John B. Taylor]] independently made a similar recommendation in the same year.<ref>{{cite journal \|last1=Taylor \|first1=John B. \|title=Teaching Modern Macroeconomics at the Principles Level \|journal=American Economic Review \|date=May 2000 \|volume=90 \|issue=2 \|pages=90–94 \|doi=10.1257/aer.90.2.90 \|url=https://www.aeaweb.org/articles?id=10.1257/aer.90.2.90 \|access-date=18 November 2023 \|language=en \|issn=0002-8282}}</ref> After 2000, this has led to various modifications to the model in many textbooks, replacing the traditional LM curve and story of the central bank influencing the interest rate level indirectly via controlling the supply of money in the money market to a more realistic one of the central bank determining the policy interest rate as an exogenous variable directly.<ref name=blanchard/><ref>{{cite book \|last1=Romer \|first1=David \|title=Advanced macroeconomics \|page=262-264 \|date=2019 \|publisher=McGraw-Hill \|location=New York, NY \|isbn=978-1-260-18521-8 \|edition=Fifth}}
			</ref><ref name=SWJ>{{cite book \|last1=Sørensen \|first1=Peter Birch \|last2=Whitta-Jacobsen \|first2=Hans Jørgen \|title=Introducing advanced macroeconomics: growth and business cycles \|page=606 \|date=2022 \|publisher=Oxford University Press \|location=Oxford, United Kingdom New York, NY \|isbn=978-0-19-885049-6 \|edition=Third}}</ref>

	==Formation==		==Formation==
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	The IS–LM model also allows for the role of [[monetary policy]]. If the money supply is increased, that shifts the LM curve downward or to the right, lowering interest rates and raising equilibrium national income. Further, exogenous decreases in liquidity preference, perhaps due to improved transactions technologies, lead to downward shifts of the LM curve and thus increases in income and decreases in interest rates. Changes in these variables in the opposite direction shift the LM curve in the opposite direction.		The IS–LM model also allows for the role of [[monetary policy]]. If the money supply is increased, that shifts the LM curve downward or to the right, lowering interest rates and raising equilibrium national income. Further, exogenous decreases in liquidity preference, perhaps due to improved transactions technologies, lead to downward shifts of the LM curve and thus increases in income and decreases in interest rates. Changes in these variables in the opposite direction shift the LM curve in the opposite direction.

			==IS–LM model with interest targeting central bank==

			The fact that contemporary central banks normally do not target the money supply, as assumed by the original IS–LM model, but instead conduct their monetary policy by steering the interest rate directly, has led to increasing criticism of the traditional IS–LM setup since 2000 for being outdated and confusing to students. In some textbooks, the traditional LM curve derived from an explicit money market equilibrium story consequently has been replaced by an LM curve simply showing the interest rate level determined by the central bank. Notably this is the case in [[Olivier Blanchard]]'s widely-used<ref name=Courtoy>{{cite web \|last1=Courtoy \|first1=François \|last2=De Vroey \|first2=Michel \|last3=Turati \|first3=Riccardo \|title=What do we teach in Macroeconomics? Evidence of a Theoretical Divide \|url=https://sites.uclouvain.be/econ/DP/IRES/2021023.pdf \|website=sites.uclouvain.be \|publisher=UCLouvain \|access-date=17 November 2023}}</ref> intermediate-level textbook "''Macroeconomics''" since its 7th edition in 2017.<ref name=Davis>{{cite journal \|last1=Davis \|first1=Leila E. \|last2=Gómez-Ramírez \|first2=Leopoldo \|title=Teaching post-intermediate macroeconomics with a dynamic 3-equation model \|journal=The Journal of Economic Education \|date=2 October 2022 \|volume=53 \|issue=4 \|pages=348–367 \|doi=10.1080/00220485.2022.2111385 \|url=https://www.tandfonline.com/doi/full/10.1080/00220485.2022.2111385 \|access-date=17 November 2023 \|language=en \|issn=0022-0485}}</ref>

			In this case, the LM curve becomes horizontal at the interest rate level chosen by the central bank, allowing a simpler kind of dynamics. Also, the interest rate level measured along the vertical axis may be interpreted as either the nominal or the real interest rate, in the latter case allowing inflation to enter the IS–LM model in a simple way. The output level is still determined by the intersection of the IS and LM curves. The LM curve may shift because of a change in monetary policy or possibly a change in inflation expectations, whereas the IS curve as in the traditional model may shift either because of a change in fiscal policy affecting government consumption or taxation, or because of shocks affecting private consumption or investment (or, in the open-economy version, net exports). Additionally, the model distinguishes between the policy interest rate determined by the central bank and the market interest rate which is decisive for firms' investment decisions, and which is equal to the policy interest rate plus a premium which may be interpreted as a risk premium or a measure of the market power or other factors influencing the business strategies of commercial banks. This premium allows for shocks in the financial sector being transmitted to the goods market and consequently affecting aggregate demand.<ref name=blanchard/>

			Similar models, though called sligthly different names, appear in the textbooks by [[Charles I. Jones\|Charles Jones]]<ref name=araujo>{{cite journal \|last1=de Araujo \|first1=Pedro \|last2=O’Sullivan \|first2=Roisin \|last3=Simpson \|first3=Nicole B. \|title=What Should be Taught in Intermediate Macroeconomics? \|journal=The Journal of Economic Education \|date=January 2013 \|volume=44 \|issue=1 \|pages=74–90 \|doi=10.1080/00220485.2013.740399 \|url=https://www.tandfonline.com/doi/full/10.1080/00220485.2013.740399 \|access-date=17 November 2023 \|language=en \|issn=0022-0485}}</ref> and by [[Wendy Carlin]] and [[David Soskice]]<ref name=Davis/> and the [[CORE Econ]] project.<ref name=Davis/> Parallelly, texts by Akira Weerapana and [[Stephen Williamson (economist)\|Stephen Williamson]] have outlined approaches where the LM curve is replaced with a real interest rate rule.<ref name=araujo/><ref>{{cite journal \|last1=Weerapana \|first1=Akila \|title=Intermediate Macroeconomics without the IS-LM Model \|journal=The Journal of Economic Education \|date=2003 \|volume=34 \|issue=3 \|pages=241–262 \|url=https://www.jstor.org/stable/30042548 \|access-date=18 November 2023 \|issn=0022-0485}}</ref>

	==Incorporation into larger models==		==Incorporation into larger models==
	By itself, the IS–LM model is used to study the short run when [[price level\|prices]] are fixed or sticky and no [[inflation]] is taken into consideration. ~~But~~ ~~in practice~~ the ~~main role of~~ ~~the~~ ~~model~~ is as a sub-model of larger models ~~(especially~~ the Aggregate Demand-Aggregate Supply model – the [[AD–AS model]]~~) which allow~~ ~~for a flexible [[price level]].~~ In the aggregate demand-aggregate supply model, each point on the aggregate demand curve is an outcome of the IS–LM model for aggregate demand Y based on a particular price level. Starting from one point on the aggregate demand curve, at a particular price level and a quantity of aggregate demand implied by the IS–LM model for that price level, if one considers a higher potential price level, in the IS–LM model the real money supply M/P will be lower and hence the LM curve will be shifted higher, leading to lower aggregate demand as measured by the horizontal location of the IS–LM intersection; hence at the higher price level the level of aggregate demand is lower, so the aggregate demand curve is negatively sloped.		By itself, the traditional IS–LM model is used to study the short run when [[price level\|prices]] are fixed or sticky, and no [[inflation]] is taken into consideration. In addition, the model is often used as a sub-model of larger models which allow for a flexible [[price level]]. The addition of a supply relation enables the model to be used for both short- and medium-run analyses of the economy, or to use a different terminology: classical and Keynesian analyses.<ref name=araujo/>

			A main example of this is the Aggregate Demand-Aggregate Supply model – the [[AD–AS model]].<ref name=araujo/> In the aggregate demand-aggregate supply model, each point on the aggregate demand curve is an outcome of the IS–LM model for aggregate demand Y based on a particular price level. Starting from one point on the aggregate demand curve, at a particular price level and a quantity of aggregate demand implied by the IS–LM model for that price level, if one considers a higher potential price level, in the IS–LM model the real money supply M/P will be lower and hence the LM curve will be shifted higher, leading to lower aggregate demand as measured by the horizontal location of the IS–LM intersection; hence at the higher price level the level of aggregate demand is lower, so the aggregate demand curve is negatively sloped.

		⚫	In the 2018 textbook "Macroeconomics" by [[Daron Acemoglu]], [[David Laibson]] and [[John A. List]], the corresponding model combining a traditional IS-LM setup with a relation for a changing price level is named an IS-LM-FE model (FE standing for "full equilibrium").<ref name="acemoglu_etal_2018">{{Cite book\|last=Acemoglu\|first=Daron \|title=Macroeconomics \|date=2018 \|author2=David I. Laibson \|author3=John A. List \|isbn=978-0-13-449205-6 \|edition=Second \|publisher=Pearson \|location=New York \|oclc=956396690}}</ref>

			===AD-AS-like models with inflation instead of price levels===

			In many modern textbooks, the traditional AD–AS diagram is replaced by a variation in which the variables are not output and the price level, but instead output and inflation (i.e., the change in the price level). In this case, the relation corresponding to the AS curve is normally derived from a [[Phillips curve]] relationship between inflation and the unemployment gap. As policymakers and economists are generally concerned about inflation levels and not actual price levels, this formulation is considered more appropriate. This variation is often referred to as a dynamic AD–AS model,<ref name=SWJ/><ref>{{cite book \|last1=Mankiw \|first1=Nicholas Gregory \|title=Macroeconomics \|date=2022 \|publisher=Worth Publishers, Macmillan Learning \|location=New York, NY \|isbn=978-1-319-26390-4 \|edition=Eleventh, international}}</ref> but may also have other names. Olivier Blanchard in his textbook uses the term IS–LM–PC model (PC standing for Phillips curve).<ref name=blanchard/> Others, among them Carlin and Soskice, refer to it as the "three-equation New Keynesian model",<ref name=Davis/> the three equations being an IS relation, often augmented with a term that allows for expectations influencing demand, a monetary policy (interest) rule and a short-run Phillips curve.<ref name=araujo/>
⚫	In the 2018 textbook "Macroeconomics" by [[Daron Acemoglu]], [[David Laibson]] and [[John A. List]], the corresponding model combining a traditional IS-LM setup with a relation for a changing price level is named an IS-LM-FE model (FE standing for "full equilibrium").<ref name="acemoglu_etal_2018">{{Cite book\|last=Acemoglu\|first=Daron \|title=Macroeconomics \|date=2018 \|author2=David I. Laibson \|author3=John A. List \|isbn=978-0-13-449205-6 \|edition=Second \|publisher=Pearson \|location=New York \|oclc=956396690}}</ref> ~~The addition of a third relation enables the model to be used for both short- and medium-run analyses of the economy, or to use a different terminology: classical and Keynesian analyses.~~

	==Variations ==		==Variations ==
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	* [[Keynesian cross]]		* [[Keynesian cross]]
	* [[AD–IA model]]		* [[AD–IA model]]
	* [[IS/MP model]]
	* [[Mundell–Fleming model]]		* [[Mundell–Fleming model]]
	* [[National savings]]		* [[National savings]]

Økonom: added to History section, merged IS-LM-FE section with "Incorporation into larger models" - as a variant of the AD-AS model, it does not merit own section

2023-11-16T16:56:53Z

added to History section, merged IS-LM-FE section with "Incorporation into larger models" - as a variant of the AD-AS model, it does not merit own section

← Previous revision		Revision as of 16:56, 16 November 2023
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	{{Short description\|Macroeconomic model relating interest rates and asset market}}		{{Short description\|Macroeconomic model relating interest rates and asset market}}
	[[File:Islm.svg\|thumb\|270px\|The IS curve moves to the right, causing higher interest rates (i) and expansion in the "real" economy (real GDP, or Y)]]{{Macroeconomics sidebar}}		[[File:Islm.svg\|thumb\|270px\|The IS curve moves to the right, causing higher interest rates (i) and expansion in the "real" economy (real GDP, or Y)]]{{Macroeconomics sidebar}}
	'''IS–LM model''', or '''Hicks–Hansen model''', is a two-dimensional [[macroeconomic]] tool that shows the relationship between [[interest rates]] and [[Asset markets\|assets market]] (also known as real output in goods and services market plus [[money market]]). The intersection of the "[[Investment (macroeconomics)\|investment]]–[[National saving\|saving]]" (IS) and "[[liquidity preference]]–[[money supply]]" (LM) curves models "general equilibrium" where supposed simultaneous equilibria occur in both the goods and the asset markets.<ref>{{cite book \|author-link=Robert J. Gordon \|first=Robert J. \|last=Gordon \|title=Macroeconomics \|edition=Eleventh \|year=2009 \|location=Boston \|publisher=Pearson Addison Wesley \|isbn=9780321552075 }}</ref> Yet two equivalent interpretations are possible: first, the IS–LM model explains changes in [[national income]] when the price level is fixed in the short-run; second, the IS–LM model shows why an [[aggregate demand curve]] can shift.<ref name="mankiw-textboox">{{cite book \|author-link=N. Gregory Mankiw \|first=N. Gregory \|last=Mankiw \|title=Macroeconomics \|edition=Eighth \|year=2012 \|location=New York \|publisher=Worth Publishers \|isbn=9781429240024}}</ref>		The '''IS–LM model''', or '''Hicks–Hansen model''', is a two-dimensional [[macroeconomic]] tool that shows the relationship between [[interest rates]] and [[Asset markets\|assets market]] (also known as real output in goods and services market plus [[money market]]). The intersection of the "[[Investment (macroeconomics)\|investment]]–[[National saving\|saving]]" (IS) and "[[liquidity preference]]–[[money supply]]" (LM) curves models "general equilibrium" where supposed simultaneous equilibria occur in both the goods and the asset markets.<ref>{{cite book \|author-link=Robert J. Gordon \|first=Robert J. \|last=Gordon \|title=Macroeconomics \|edition=Eleventh \|year=2009 \|location=Boston \|publisher=Pearson Addison Wesley \|isbn=9780321552075 }}</ref> Yet two equivalent interpretations are possible: first, the IS–LM model explains changes in [[national income]] when the price level is fixed in the short-run; second, the IS–LM model shows why an [[aggregate demand curve]] can shift.<ref name="mankiw-textboox">{{cite book \|author-link=N. Gregory Mankiw \|first=N. Gregory \|last=Mankiw \|title=Macroeconomics \|edition=Eighth \|year=2012 \|location=New York \|publisher=Worth Publishers \|isbn=9781429240024}}</ref>
	Hence, this tool is sometimes used not only to analyse economic fluctuations but also to suggest potential levels for appropriate stabilisation policies.<ref>{{cite book \|author-link1=John Soman \|author-link2=Alison Wride \|first1=John \|last1=Sloman \|first2=Alison \|last2=Wride \|title=Economics \|edition=Seventh \|year=2009 \|publisher=Prentice Hall \|isbn=9780273715627}}</ref>		Hence, this tool is sometimes used not only to analyse economic fluctuations but also to suggest potential levels for appropriate stabilisation policies.<ref>{{cite book \|author-link1=John Soman \|author-link2=Alison Wride \|first1=John \|last1=Sloman \|first2=Alison \|last2=Wride \|title=Economics \|edition=Seventh \|year=2009 \|publisher=Prentice Hall \|isbn=9780273715627}}</ref>

	The model was developed by [[John Hicks]] in 1937<ref name="Hicks1937" /> and was later extended by [[Alvin Hansen]],<ref>{{cite book \|last=Hansen \|first=A. H. \|year=1953 \|title=A Guide to Keynes \|url=https://archive.org/details/guidetokeynes0000hans \|url-access=registration \|location=New York \|publisher=McGraw Hill \|isbn=9780070260467 }}</ref> as a mathematical representation of [[Keynesian economics\|Keynesian macroeconomic theory]]. Between the 1940s and mid-1970s, it was the leading framework of macroeconomic analysis.<ref>{{cite book \|last=Bentolila \|first=Samuel \|chapter=Hicks–Hansen model \|title=An Eponymous Dictionary of Economics: A Guide to Laws and Theorems Named after Economists \|publisher=Edward Elgar \|year=2005 \|isbn=978-1-84376-029-0 }}</ref> While it has been largely absent from macroeconomic research ever since, it is still a backbone conceptual introductory tool in many macroeconomics textbooks.<ref>{{cite journal \|first=David \|last=Colander \|author-link=David Colander \|title=The Strange Persistence of the IS-LM Model \|journal=History of Political Economy \|volume=36 \|issue=Annual Supplement \|year=2004 \|pages=305–322 \|url=http://muse.jhu.edu/journals/history_of_political_economy/v036/36.5colander.pdf \|doi=10.1215/00182702-36-suppl_1-305\|citeseerx=10.1.1.692.6446 \|s2cid=6705939 }}</ref> By itself, the IS–LM model is used to study the short run when [[price level\|prices]] are fixed or sticky and no [[inflation]] is taken into consideration. But in practice the main role of the model is as a path to explain the [[AD–AS model]].<ref name="mankiw-textboox" />		The model was developed by [[John Hicks]] in 1937<ref name="Hicks1937" /> and was later extended by [[Alvin Hansen]],<ref>{{cite book \|last=Hansen \|first=A. H. \|year=1953 \|title=A Guide to Keynes \|url=https://archive.org/details/guidetokeynes0000hans \|url-access=registration \|location=New York \|publisher=McGraw Hill \|isbn=9780070260467 }}</ref> as a mathematical representation of [[Keynesian economics\|Keynesian macroeconomic theory]]. Between the 1940s and mid-1970s, it was the leading framework of macroeconomic analysis.<ref>{{cite book \|last=Bentolila \|first=Samuel \|chapter=Hicks–Hansen model \|title=An Eponymous Dictionary of Economics: A Guide to Laws and Theorems Named after Economists \|publisher=Edward Elgar \|year=2005 \|isbn=978-1-84376-029-0 }}</ref> While it has been largely absent from macroeconomic research ever since, it is still a backbone conceptual introductory tool in many macroeconomics textbooks.<ref>{{cite journal \|first=David \|last=Colander \|author-link=David Colander \|title=The Strange Persistence of the IS-LM Model \|journal=History of Political Economy \|volume=36 \|issue=Annual Supplement \|year=2004 \|pages=305–322 \|url=http://muse.jhu.edu/journals/history_of_political_economy/v036/36.5colander.pdf \|doi=10.1215/00182702-36-suppl_1-305\|citeseerx=10.1.1.692.6446 \|s2cid=6705939 }}</ref> By itself, the IS–LM model is used to study the short run when [[price level\|prices]] are fixed or sticky and no [[inflation]] is taken into consideration. But in practice the main role of the model is as a path to explain the [[AD–AS model]].<ref name="mankiw-textboox" />

⚫	==History==
⚫	The IS–LM model was introduced at a conference of the [[Econometric Society]] held in Oxford during September 1936. [[Roy Harrod]], [[John Hicks\|John R. Hicks]], and [[James Meade]] all presented papers
⚫	describing [[mathematical model]]s attempting to summarize [[John Maynard Keynes]]' ''[[General Theory of Employment, Interest, and Money]]''.<ref name="Hicks1937" /><ref>{{cite journal \|last=Meade \|first=J. E. \|title=A Simplified Model of Mr. Keynes' System \|journal=[[Review of Economic Studies]] \|volume=4 \|issue=2 \|pages=98–107 \|year=1937 \|jstor=2967607 \|doi=10.2307/2967607 }}</ref> Hicks, who had seen a draft of Harrod's paper, invented the IS–LM model (originally using the [[abbreviation]] "LL", not "LM"). He later presented it in
⚫	"Mr. Keynes and the Classics: A Suggested Interpretation".<ref name="Hicks1937">{{cite journal \|last=Hicks \|first=J. R. \|year=1937 \|title=Mr. Keynes and the 'Classics': A Suggested Interpretation \|journal=[[Econometrica]] \|volume=5 \|issue=2 \|pages=147–159 \|jstor= 1907242\|doi=10.2307/1907242}}</ref>

	Although generally accepted as being imperfect, the model is seen as a useful pedagogical tool for imparting an understanding of the questions that macroeconomists today attempt to answer through more nuanced approaches. As such, it is included in most undergraduate macroeconomics textbooks.<ref>{{cite web		Although generally accepted as being imperfect, the model is seen as a useful pedagogical tool for imparting an understanding of the questions that macroeconomists today attempt to answer through more nuanced approaches. As such, it is included in most undergraduate macroeconomics textbooks.<ref>{{cite web
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	\|url=http://scholar.harvard.edu/files/mankiw/files/macroeconomist_as_scientist.pdf		\|url=http://scholar.harvard.edu/files/mankiw/files/macroeconomist_as_scientist.pdf
	\|page=19		\|page=19
	\|access-date=2014-11-17}}</ref>		\|access-date=2014-11-17}}</ref>

		⚫	==History==
		⚫	The IS–LM model was introduced at a conference of the [[Econometric Society]] held in Oxford during September 1936. [[Roy Harrod]], [[John Hicks\|John R. Hicks]], and [[James Meade]] all presented papers
		⚫	describing [[mathematical model]]s attempting to summarize [[John Maynard Keynes]]' ''[[General Theory of Employment, Interest, and Money]]''.<ref name="Hicks1937" /><ref>{{cite journal \|last=Meade \|first=J. E. \|title=A Simplified Model of Mr. Keynes' System \|journal=[[Review of Economic Studies]] \|volume=4 \|issue=2 \|pages=98–107 \|year=1937 \|jstor=2967607 \|doi=10.2307/2967607 }}</ref> Hicks, who had seen a draft of Harrod's paper, invented the IS–LM model (originally using the [[abbreviation]] "LL", not "LM"). He later presented it in
		⚫	"Mr. Keynes and the Classics: A Suggested Interpretation".<ref name="Hicks1937">{{cite journal \|last=Hicks \|first=J. R. \|year=1937 \|title=Mr. Keynes and the 'Classics': A Suggested Interpretation \|journal=[[Econometrica]] \|volume=5 \|issue=2 \|pages=147–159 \|jstor= 1907242\|doi=10.2307/1907242}}</ref>

			The model became a central tool of macroeconomic teaching for many decades. It was particularly suited to illustrate the debate of the 1960s and 1970s between Keynesians and monetarists as to whether fiscal or monetary policy was most effective to [[Stabilization policy\|stabilize the economy]]. Later, this issue faded from focus and came to play only a modest role in discussions of short-run fluctuations.<ref name=Romer>{{cite journal \|last1=Romer \|first1=David \|title=Keynesian Macroeconomics without the LM Curve \|journal=Journal of Economic Perspectives \|date=1 May 2000 \|volume=14 \|issue=2 \|pages=149–170 \|doi=10.1257/jep.14.2.149 \|url=https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.14.2.149 \|access-date=9 November 2023 \|language=en \|issn=0895-3309}}</ref>

			The IS-LM model assumes a fixed price level and consequently cannot in itself be used to analyze inflation. This was of little importance in the 1950s and early 1960s when inflation was not an important issue, but became problematic with the rising inflation levels in the late 1960s and 1970s, which led to extensions of the model to also incorporate [[aggregate supply]] in some form, e.g. in the form of the [[AD–AS model]], which can be regarded as an IS-LM model with an added supply side explaining rises in the price level.<ref name=Romer/>

			One of the basic assumptions of the IS-LM model is that the central bank targets the money supply.<ref name=Romer/> However, a fundamental rethinking in central bank policy took place from the early 1990s when central banks generally changed strategies from targeting inflation rather than money growth and using an interest rate rule to achieve their goal.<ref name=blanchard>{{cite book \|last1=Blanchard \|first1=Olivier \|title=Macroeconomics \|date=2021 \|publisher=Pearson \|location=Harlow, England \|isbn=978-0-134-89789-9 \|page=505-509 \|edition=Eighth, global}}</ref>{{Rp\|507}} As central banks started paying little attention to the money supply when deciding on their policy, this model feature became increasingly realistic and sometimes confusing to students.<ref name=Romer/> After 2000, this has led to various modifications to the model, replacing the traditional LM curve and story of the central bank influencing the interest rate level indirectly via controlling the supply of money in the money market to a more realistic one of the central bank determining the policy interest rate as an exogenous variable directly.<ref name=blanchard/><ref name=Romer/>

	==Formation==		==Formation==
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	===IS (investment–saving) curve===		===IS (investment–saving) curve===
	[[File:I-S and Y=AD to IS NT Wiki.png\|thumb\|IS curve represented by equilibrium in the ~~money~~ market and Keynesian cross diagram.]]		[[File:I-S and Y=AD to IS NT Wiki.png\|thumb\|IS curve represented by equilibrium in the capital market and Keynesian cross diagram.]]
	The IS curve shows the causation from interest rates to planned investment to national income and output.		The IS curve shows the causation from interest rates to planned investment to national income and output.

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	By itself, the IS–LM model is used to study the short run when [[price level\|prices]] are fixed or sticky and no [[inflation]] is taken into consideration. But in practice the main role of the model is as a sub-model of larger models (especially the Aggregate Demand-Aggregate Supply model – the [[AD–AS model]]) which allow for a flexible [[price level]]. In the aggregate demand-aggregate supply model, each point on the aggregate demand curve is an outcome of the IS–LM model for aggregate demand Y based on a particular price level. Starting from one point on the aggregate demand curve, at a particular price level and a quantity of aggregate demand implied by the IS–LM model for that price level, if one considers a higher potential price level, in the IS–LM model the real money supply M/P will be lower and hence the LM curve will be shifted higher, leading to lower aggregate demand as measured by the horizontal location of the IS–LM intersection; hence at the higher price level the level of aggregate demand is lower, so the aggregate demand curve is negatively sloped.		By itself, the IS–LM model is used to study the short run when [[price level\|prices]] are fixed or sticky and no [[inflation]] is taken into consideration. But in practice the main role of the model is as a sub-model of larger models (especially the Aggregate Demand-Aggregate Supply model – the [[AD–AS model]]) which allow for a flexible [[price level]]. In the aggregate demand-aggregate supply model, each point on the aggregate demand curve is an outcome of the IS–LM model for aggregate demand Y based on a particular price level. Starting from one point on the aggregate demand curve, at a particular price level and a quantity of aggregate demand implied by the IS–LM model for that price level, if one considers a higher potential price level, in the IS–LM model the real money supply M/P will be lower and hence the LM curve will be shifted higher, leading to lower aggregate demand as measured by the horizontal location of the IS–LM intersection; hence at the higher price level the level of aggregate demand is lower, so the aggregate demand curve is negatively sloped.

			In the 2018 textbook "Macroeconomics" by [[Daron Acemoglu]], [[David Laibson]] and [[John A. List]], the corresponding model combining a traditional IS-LM setup with a relation for a changing price level is named an IS-LM-FE model (FE standing for "full equilibrium").<ref name="acemoglu_etal_2018">{{Cite book\|last=Acemoglu\|first=Daron \|title=Macroeconomics \|date=2018 \|author2=David I. Laibson \|author3=John A. List \|isbn=978-0-13-449205-6 \|edition=Second \|publisher=Pearson \|location=New York \|oclc=956396690}}</ref> The addition of a third relation enables the model to be used for both short- and medium-run analyses of the economy, or to use a different terminology: classical and Keynesian analyses.
	== Introduction of the new full equilibrium (FE) component: The IS–LM–FE model ==
	Sir [[John Hicks]], a [[List of Nobel laureates\|Nobel laureate]], created the model in 1937 as a graphical representation of the ideas introduced by [[John Maynard Keynes]] in his influential 1936 book, [[The General Theory of Employment, Interest and Money\|The General Theory of Employment, Interest, and Money]]. <ref name="acemoglu_etal_2018">{{Cite book\|last=Acemoglu\|first=Daron \|title=Macroeconomics \|date=2018 \|author2=David I. Laibson \|author3=John A. List \|isbn=978-0-13-449205-6 \|edition=Second \|location=New York \|oclc=956396690}}</ref> In his original IS–LM model, Hicks assumed that the price level was fixed, reflecting John Maynard Keynes' belief that wages and prices do not adapt quickly to clear markets.

	The introduction of an adjustment to Hicks' loose assumption of a fixed price level requires allowing the [[price level]] to change. Allowing the price level to change necessitates the addition of a third component, the full equilibrium (FE) condition.<ref name="acemoglu_etal_2018" /> When this component is added to the IS–LM model, a new model called IS–LM–FE emerges. The IS–LM–FE model is widely used in [[Business cycle\|cyclical fluctuations analysis]], forecasting, and [[Macroeconomic policy\|macroeconomic policymaking]].<ref name="acemoglu_etal_2018" /> There are many advantages to using the IS–LM–FE model as a framework for both [[Classical economics\|classical]] and [[Keynesian economics\|Keynesian]] analyses: First, rather than learning two different models for classical and Keynesian analyses, a single model can be used for both.<ref name="acemoglu_etal_2018" /> Second, using a single framework highlights the many areas of agreement between the [[Keynesian economics\|Keynesian]] and classical approaches while also emphasizing the differences between them. Furthermore, since various versions of the IS–LM–FE model (along with its ideas and terminology) are frequently used in economic and macroeconomic policy analyses, studying this framework will help to understand and engage in contemporary economic debates. Three approaches are used when analyzing this economic model: graphical, numerical, and algebraic.

	==Variations ==		==Variations ==

← Previous revision		Revision as of 03:38, 3 April 2024
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	* {{cite book \|last=Barro \|first=Robert J. \|author-link=Robert Barro \|chapter=The Keynesian Theory of Business Fluctuations \|title=Macroeconomics \|location=New York \|publisher=John Wiley \|year=1984 \|isbn=978-0-471-87407-2 \|pages=[https://archive.org/details/macroeconomics00barr/page/487 487–513] \|chapter-url=https://archive.org/details/macroeconomics00barr/page/487 }}		* {{cite book \|last=Barro \|first=Robert J. \|author-link=Robert Barro \|chapter=The Keynesian Theory of Business Fluctuations \|title=Macroeconomics \|location=New York \|publisher=John Wiley \|year=1984 \|isbn=978-0-471-87407-2 \|pages=[https://archive.org/details/macroeconomics00barr/page/487 487–513] \|chapter-url=https://archive.org/details/macroeconomics00barr/page/487 }}
	* {{cite book \|last1=Blanchard \|first1=Olivier \| author-link=Olivier Blanchard \|chapter=Goods and Financial Markets: The IS-LM Model \|title=Macroeconomics \|date=2021 \|publisher=Pearson \|location=Harlow, England \|isbn=978-0-134-89789-9 \|edition=Eighth, global \|pages=~~107-126~~}}		* {{cite book \|last1=Blanchard \|first1=Olivier \| author-link=Olivier Blanchard \|chapter=Goods and Financial Markets: The IS-LM Model \|title=Macroeconomics \|date=2021 \|publisher=Pearson \|location=Harlow, England \|isbn=978-0-134-89789-9 \|edition=Eighth, global \|pages=107–126}}
	* {{cite journal \|last=Hicks \|first=J. R. \| author-link=John Hicks \|year=1937 \|title=Mr. Keynes and the 'Classics': A Suggested Interpretation \|journal=[[Econometrica]] \|volume=5 \|issue=2 \|pages=147–159 \|jstor= 1907242\|doi=10.2307/1907242}}		* {{cite journal \|last=Hicks \|first=J. R. \| author-link=John Hicks \|year=1937 \|title=Mr. Keynes and the 'Classics': A Suggested Interpretation \|journal=[[Econometrica]] \|volume=5 \|issue=2 \|pages=147–159 \|jstor= 1907242\|doi=10.2307/1907242}}
	* {{cite news \|last=Krugman \|first=Paul \| author-link=Paul Krugman \|date=2011-10-09 \|title=IS-LMentary \|url=https://krugman.blogs.nytimes.com/2011/10/09/is-lmentary/ \|work=The New York Times \|access-date=2020-10-01}}		* {{cite news \|last=Krugman \|first=Paul \| author-link=Paul Krugman \|date=2011-10-09 \|title=IS-LMentary \|url=https://krugman.blogs.nytimes.com/2011/10/09/is-lmentary/ \|work=The New York Times \|access-date=2020-10-01}}
	* {{cite book \|last=Leijonhufvud \|first=Axel \|author-link=Axel Leijonhufvud \|editor-last=Fitoussi \|editor-first=Jean-Paul \|editor-link=Jean-Paul Fitoussi \|chapter=What is Wrong with IS/LM? \|title=Modern Macroeconomic Theory \|location=Oxford \|publisher=Blackwell \|year=1983 \|isbn=978-0-631-13158-8 \|pages=[https://archive.org/details/modernmacroecono0000unse/page/49 49–90] \|chapter-url=https://archive.org/details/modernmacroecono0000unse/page/49 }}		* {{cite book \|last=Leijonhufvud \|first=Axel \|author-link=Axel Leijonhufvud \|editor-last=Fitoussi \|editor-first=Jean-Paul \|editor-link=Jean-Paul Fitoussi \|chapter=What is Wrong with IS/LM? \|title=Modern Macroeconomic Theory \|location=Oxford \|publisher=Blackwell \|year=1983 \|isbn=978-0-631-13158-8 \|pages=[https://archive.org/details/modernmacroecono0000unse/page/49 49–90] \|chapter-url=https://archive.org/details/modernmacroecono0000unse/page/49 }}
	* {{cite book \|last1=Mankiw \|first1=Nicholas Gregory \|author-link=Greg Mankiw \|chapter=Aggregate Demand I+II \|title=Macroeconomics \|date=2022 \|publisher=Worth Publishers, Macmillan Learning \|location=New York, NY \|isbn=978-1-319-26390-4 \|edition=Eleventh, international \|pages=~~283-334~~}}		* {{cite book \|last1=Mankiw \|first1=Nicholas Gregory \|author-link=Greg Mankiw \|chapter=Aggregate Demand I+II \|title=Macroeconomics \|date=2022 \|publisher=Worth Publishers, Macmillan Learning \|location=New York, NY \|isbn=978-1-319-26390-4 \|edition=Eleventh, international \|pages=283–334}}
	* {{cite journal \|last1=Romer \|first1=David \| author-link=David Romer \|title=Keynesian Macroeconomics without the LM Curve \|journal=Journal of Economic Perspectives \|date=2000 \|volume=14 \|issue=2 \|pages=149–170 \|doi=10.1257/jep.14.2.149 \|url=https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.14.2.149 \|language=en \|issn=0895-3309}}		* {{cite journal \|last1=Romer \|first1=David \| author-link=David Romer \|title=Keynesian Macroeconomics without the LM Curve \|journal=Journal of Economic Perspectives \|date=2000 \|volume=14 \|issue=2 \|pages=149–170 \|doi=10.1257/jep.14.2.149 \|url=https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.14.2.149 \|language=en \|issn=0895-3309}}
	* {{cite journal \|last=Smith \|first=Warren L. \|title=A Graphical Exposition of the Complete Keynesian System \|journal=[[Southern Economic Journal]] \|volume=23 \|issue=2 \|pages=115–125 \|year=1956 \|doi=10.2307/1053551 \|jstor=1053551 }}		* {{cite journal \|last=Smith \|first=Warren L. \|title=A Graphical Exposition of the Complete Keynesian System \|journal=[[Southern Economic Journal]] \|volume=23 \|issue=2 \|pages=115–125 \|year=1956 \|doi=10.2307/1053551 \|jstor=1053551 }}
	* {{cite book \|editor1-last=Vroey \|editor1-first=Michel de \|editor2-last=Hoover \|editor2-first=Kevin D. \|editor2-link=Kevin Hoover \|title=The IS-LM model: Its Rise, Fall, and Strange Persistence \|location=Durham \|publisher=Duke University Press \|year=2004 \|isbn=978-0-8223-6631-7 }}		* {{cite book \|editor1-last=Vroey \|editor1-first=Michel de \|editor2-last=Hoover \|editor2-first=Kevin D. \|editor2-link=Kevin Hoover \|title=The IS-LM model: Its Rise, Fall, and Strange Persistence \|location=Durham \|publisher=Duke University Press \|year=2004 \|isbn=978-0-8223-6631-7 }}
	* {{cite book \|editor1-last=Young \|editor1-first=Warren \|editor2-last=Zilberfarb \|editor2-first=Ben-Zion \|title=IS-LM and Modern Macroeconomics \|series=Recent Economic Thought \|volume=73 \|url=https://link.springer.com/book/10.1007/978-94-010-0644-6 \|publisher=Springer Science & Business Media \|year=2000 \|isbn=978-0-7923-7966-9 }}		* {{cite book \|editor1-last=Young \|editor1-first=Warren \|editor2-last=Zilberfarb \|editor2-first=Ben-Zion \|title=IS-LM and Modern Macroeconomics \|series=Recent Economic Thought \|volume=73 \|url=https://link.springer.com/book/10.1007/978-94-010-0644-6 \|publisher=Springer Science & Business Media \|year=2000 \|doi=10.1007/978-94-010-0644-6 \|isbn=978-0-7923-7966-9 }}

	==External links==		==External links==

← Previous revision		Revision as of 06:36, 28 November 2023
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	The IS–LM model was introduced at a conference of the [[Econometric Society]] held in Oxford during September 1936. [[Roy Harrod]], [[John Hicks\|John R. Hicks]], and [[James Meade]] all presented papers		The IS–LM model was introduced at a conference of the [[Econometric Society]] held in Oxford during September 1936. [[Roy Harrod]], [[John Hicks\|John R. Hicks]], and [[James Meade]] all presented papers
	describing [[mathematical model]]s attempting to summarize [[John Maynard Keynes]]' ''[[General Theory of Employment, Interest, and Money]]''.<ref name="Hicks1937" /><ref>{{cite journal \|last=Meade \|first=J. E. \|title=A Simplified Model of Mr. Keynes' System \|journal=[[Review of Economic Studies]] \|volume=4 \|issue=2 \|pages=98–107 \|year=1937 \|jstor=2967607 \|doi=10.2307/2967607 }}</ref> Hicks, who had seen a draft of Harrod's paper, invented the IS–LM model (originally using the [[abbreviation]] "LL", not "LM"). He later presented it in		describing [[mathematical model]]s attempting to summarize [[John Maynard Keynes]]' ''[[General Theory of Employment, Interest, and Money]]''.<ref name="Hicks1937" /><ref>{{cite journal \|last=Meade \|first=J. E. \|title=A Simplified Model of Mr. Keynes' System \|journal=[[Review of Economic Studies]] \|volume=4 \|issue=2 \|pages=98–107 \|year=1937 \|jstor=2967607 \|doi=10.2307/2967607 }}</ref> Hicks, who had seen a draft of Harrod's paper, invented the IS–LM model (originally using the [[abbreviation]] "LL", not "LM"). He later presented it in
	"Mr. Keynes and the Classics: A Suggested Interpretation".<ref name="Hicks1937">{{cite journal \|last=Hicks \|first=J. R. \|year=1937 \|title=Mr. Keynes and the 'Classics': A Suggested Interpretation \|journal=[[Econometrica]] \|volume=5 \|issue=2 \|pages=147–159 \|jstor= 1907242\|doi=10.2307/1907242}}</ref> Hicks and Alvin Hansen developed the model further in the 1930s and early 1940s<ref name=blanchard/>{{Rp\|527}}, Hansen extending the earlier contribution.<ref>{{cite book \|last=Hansen \|first=A. H. \|year=1953 \|title=A Guide to Keynes \|url=https://archive.org/details/guidetokeynes0000hans \|url-access=registration \|location=New York \|publisher=McGraw Hill \|isbn=9780070260467 }}</ref>		"Mr. Keynes and the Classics: A Suggested Interpretation".<ref name="Hicks1937">{{cite journal \|last=Hicks \|first=J. R. \|year=1937 \|title=Mr. Keynes and the 'Classics': A Suggested Interpretation \|journal=[[Econometrica]] \|volume=5 \|issue=2 \|pages=147–159 \|jstor= 1907242\|doi=10.2307/1907242}}</ref> Hicks and Alvin Hansen developed the model further in the 1930s and early 1940s,<ref name=blanchard/>{{Rp\|527}} Hansen extending the earlier contribution.<ref>{{cite book \|last=Hansen \|first=A. H. \|year=1953 \|title=A Guide to Keynes \|url=https://archive.org/details/guidetokeynes0000hans \|url-access=registration \|location=New York \|publisher=McGraw Hill \|isbn=9780070260467 }}</ref>
	The model became a central tool of macroeconomic teaching for many decades. Between the 1940s and mid-1970s, it was the leading framework of macroeconomic analysis.<ref>{{cite book \|last=Bentolila \|first=Samuel \|chapter=Hicks–Hansen model \|title=An Eponymous Dictionary of Economics: A Guide to Laws and Theorems Named after Economists \|publisher=Edward Elgar \|year=2005 \|isbn=978-1-84376-029-0 }}</ref> It was particularly suited to illustrate the debate of the 1960s and 1970s between Keynesians and monetarists as to whether fiscal or monetary policy was most effective to [[Stabilization policy\|stabilize the economy]]. Later, this issue faded from focus and came to play only a modest role in discussions of short-run fluctuations.<ref name=Romer>{{cite journal \|last1=Romer \|first1=David \|title=Keynesian Macroeconomics without the LM Curve \|journal=Journal of Economic Perspectives \|date=1 May 2000 \|volume=14 \|issue=2 \|pages=149–170 \|doi=10.1257/jep.14.2.149 \|url=https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.14.2.149 \|access-date=9 November 2023 \|language=en \|issn=0895-3309}}</ref>		The model became a central tool of macroeconomic teaching for many decades. Between the 1940s and mid-1970s, it was the leading framework of macroeconomic analysis.<ref>{{cite book \|last=Bentolila \|first=Samuel \|chapter=Hicks–Hansen model \|title=An Eponymous Dictionary of Economics: A Guide to Laws and Theorems Named after Economists \|publisher=Edward Elgar \|year=2005 \|isbn=978-1-84376-029-0 }}</ref> It was particularly suited to illustrate the debate of the 1960s and 1970s between Keynesians and monetarists as to whether fiscal or monetary policy was most effective to [[Stabilization policy\|stabilize the economy]]. Later, this issue faded from focus and came to play only a modest role in discussions of short-run fluctuations.<ref name=Romer>{{cite journal \|last1=Romer \|first1=David \|title=Keynesian Macroeconomics without the LM Curve \|journal=Journal of Economic Perspectives \|date=1 May 2000 \|volume=14 \|issue=2 \|pages=149–170 \|doi=10.1257/jep.14.2.149 \|url=https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.14.2.149 \|access-date=9 November 2023 \|language=en \|issn=0895-3309}}</ref>

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	==Further reading==		==Further reading==

	* {{cite book \|last=Ackley \|first=Gardner \|author-link=Gardner Ackley \|chapter=The ‘IS–LM’ Form of the Model \|pages=[https://archive.org/details/macroeconomicsth00ackl/page/358 358–383] \|title=Macroeconomics: Theory and Policy \|location=New York \|publisher=Macmillan \|year=1978 \|isbn=978-0-02-300290-8 \|chapter-url=https://archive.org/details/macroeconomicsth00ackl/page/358 }}
	* {{cite book \|last=Barro \|first=Robert J. \|author-link=Robert Barro \|chapter=The Keynesian Theory of Business Fluctuations \|title=Macroeconomics \|location=New York \|publisher=John Wiley \|year=1984 \|isbn=978-0-471-87407-2 \|pages=[https://archive.org/details/macroeconomics00barr/page/487 487–513] \|chapter-url=https://archive.org/details/macroeconomics00barr/page/487 }}		* {{cite book \|last=Barro \|first=Robert J. \|author-link=Robert Barro \|chapter=The Keynesian Theory of Business Fluctuations \|title=Macroeconomics \|location=New York \|publisher=John Wiley \|year=1984 \|isbn=978-0-471-87407-2 \|pages=[https://archive.org/details/macroeconomics00barr/page/487 487–513] \|chapter-url=https://archive.org/details/macroeconomics00barr/page/487 }}
	* {{cite book \|~~last~~=~~Darby~~ \|~~first~~=~~Michael~~ R. \|chapter=~~The~~ ~~Complete~~ ~~Keynesian~~ Model ~~\|pages=285–304~~ \|title=Macroeconomics \|~~location~~=~~New York~~ \|publisher=~~McGraw-Hill~~ \|~~year~~=~~1976~~ \|isbn=978-0-07-~~015346~~-2 }}		* {{cite book \|last1=Blanchard \|first1=Olivier \| author-link=Olivier Blanchard \|chapter=Goods and Financial Markets: The IS-LM Model \|title=Macroeconomics \|date=2021 \|publisher=Pearson \|location=Harlow, England \|isbn=978-0-134-89789-9 \|edition=Eighth, global \|pages=107-126}}
	* {{cite journal \|last=~~Farmer~~ \|first=~~Roger E~~. A. \| author-link=~~Roger~~ ~~Farmer~~ \| title=~~Confidence,~~ ~~crashes,~~ and ~~animal~~ ~~spirits~~ \|journal=[[~~The Economic Journal~~]] \|volume=~~122~~ \| issue = ~~559~~ \|pages=~~155–172~~ \|~~year~~=~~2012~~ \|doi=10.~~1111~~/~~j.1468-0297.2011.02474.x\|s2cid=16986435 \|url=https://economicdynamics.org/meetpapers/2011/paper_603.pdf~~ }}		* {{cite journal \|last=Hicks \|first=J. R. \| author-link=John Hicks \|year=1937 \|title=Mr. Keynes and the 'Classics': A Suggested Interpretation \|journal=[[Econometrica]] \|volume=5 \|issue=2 \|pages=147–159 \|jstor= 1907242\|doi=10.2307/1907242}}
	* {{cite journal \|last1=Farmer \|first1=Roger E. A. \| author-link=Roger Farmer \| last2=Platonov \|first2=Konstantin \|title=Animal spirits in a monetary model \|journal=[[European Economic Review]] \|volume=115 \|pages=60–77 \|year=2019 \|doi=10.1016/j.euroecorev.2019.02.005\|s2cid=55928575 \|url=http://www.nber.org/papers/w22136.pdf }}
	* {{cite news \|last=Farmer \|first=Roger E. A. \| author-link=Roger Farmer \|date=2016-09-02 \|title=Reinventing IS-LM: The IS-LM-NAC model and how to use it \|url=https://voxeu.org/article/reinventing-lm-explain-secular-stagnation \|work=Vox EU \|access-date=2020-10-01}}
	* {{cite book \|last1=Dernburg \|first1=Thomas F. \|last2=McDougall \|first2=Duncan M. \|chapter=Macroeconomic Equilibrium: The Level of Economic Activity \|pages=53–229 \|title=Macroeconomics \|location=New York \|publisher=McGraw-Hill \|edition=Sixth \|year=1980 \|isbn=978-0-07-016534-2 }}
	* {{cite book \|last=Keiser \|first=Norman F. \|chapter=The Real-Goods and Monetary Spheres \|title=Macroeconomics \|location=New York \|publisher=Random House \|edition=Second \|year=1975 \|isbn=978-0-394-31922-3 \|pages=231–260 }}
	* {{cite news \|last=Krugman \|first=Paul \| author-link=Paul Krugman \|date=2011-10-09 \|title=IS-LMentary \|url=https://krugman.blogs.nytimes.com/2011/10/09/is-lmentary/ \|work=The New York Times \|access-date=2020-10-01}}		* {{cite news \|last=Krugman \|first=Paul \| author-link=Paul Krugman \|date=2011-10-09 \|title=IS-LMentary \|url=https://krugman.blogs.nytimes.com/2011/10/09/is-lmentary/ \|work=The New York Times \|access-date=2020-10-01}}
	* {{cite book \|last=Leijonhufvud \|first=Axel \|author-link=Axel Leijonhufvud \|editor-last=Fitoussi \|editor-first=Jean-Paul \|editor-link=Jean-Paul Fitoussi \|chapter=What is Wrong with IS/LM? \|title=Modern Macroeconomic Theory \|location=Oxford \|publisher=Blackwell \|year=1983 \|isbn=978-0-631-13158-8 \|pages=[https://archive.org/details/modernmacroecono0000unse/page/49 49–90] \|chapter-url=https://archive.org/details/modernmacroecono0000unse/page/49 }}		* {{cite book \|last=Leijonhufvud \|first=Axel \|author-link=Axel Leijonhufvud \|editor-last=Fitoussi \|editor-first=Jean-Paul \|editor-link=Jean-Paul Fitoussi \|chapter=What is Wrong with IS/LM? \|title=Modern Macroeconomic Theory \|location=Oxford \|publisher=Blackwell \|year=1983 \|isbn=978-0-631-13158-8 \|pages=[https://archive.org/details/modernmacroecono0000unse/page/49 49–90] \|chapter-url=https://archive.org/details/modernmacroecono0000unse/page/49 }}
	* {{cite book \|~~last~~=Mankiw \|~~first~~=N. Gregory \|author-link=~~N. Gregory~~ Mankiw \|chapter=Aggregate Demand I+II \|title=Macroeconomics \|~~location~~=~~London~~ \|publisher=~~Palgrave~~ Macmillan \|~~edition~~=~~Eighth~~ ~~international~~ ~~\|year=2013~~ \|isbn=978-1-~~4641~~-~~2167~~-8 \|~~pages~~=~~301–352~~ }}		* {{cite book \|last1=Mankiw \|first1=Nicholas Gregory \|author-link=Greg Mankiw \|chapter=Aggregate Demand I+II \|title=Macroeconomics \|date=2022 \|publisher=Worth Publishers, Macmillan Learning \|location=New York, NY \|isbn=978-1-319-26390-4 \|edition=Eleventh, international \|pages=283-334}}
			* {{cite journal \|last1=Romer \|first1=David \| author-link=David Romer \|title=Keynesian Macroeconomics without the LM Curve \|journal=Journal of Economic Perspectives \|date=2000 \|volume=14 \|issue=2 \|pages=149–170 \|doi=10.1257/jep.14.2.149 \|url=https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.14.2.149 \|language=en \|issn=0895-3309}}
	* {{cite book \|last=Sawyer \|first=John A. \|chapter=A Model from Keynes's ''General Theory'' \|title=Macroeconomic Theory \|location=New York \|publisher=Harvester Wheatsheaf \|year=1989 \|isbn=978-0-7450-0555-3 \|pages=62–95 }}
	* {{cite journal \|last=Smith \|first=Warren L. \|title=A Graphical Exposition of the Complete Keynesian System \|journal=[[Southern Economic Journal]] \|volume=23 \|issue=2 \|pages=115–125 \|year=1956 \|doi=10.2307/1053551 \|jstor=1053551 }}		* {{cite journal \|last=Smith \|first=Warren L. \|title=A Graphical Exposition of the Complete Keynesian System \|journal=[[Southern Economic Journal]] \|volume=23 \|issue=2 \|pages=115–125 \|year=1956 \|doi=10.2307/1053551 \|jstor=1053551 }}
	* {{cite book \|editor1-last=Vroey \|editor1-first=Michel de \|editor2-last=Hoover \|editor2-first=Kevin D. \|editor2-link=Kevin Hoover \|title=The IS-LM model: Its Rise, Fall, and Strange Persistence \|location=Durham \|publisher=Duke University Press \|year=2004 \|isbn=978-0-8223-6631-7 }}		* {{cite book \|editor1-last=Vroey \|editor1-first=Michel de \|editor2-last=Hoover \|editor2-first=Kevin D. \|editor2-link=Kevin Hoover \|title=The IS-LM model: Its Rise, Fall, and Strange Persistence \|location=Durham \|publisher=Duke University Press \|year=2004 \|isbn=978-0-8223-6631-7 }}
	* {{cite book \|editor1-last=Young \|editor1-first=Warren \|editor2-last=Zilberfarb \|editor2-first=Ben-Zion \|title=IS-LM and Modern Macroeconomics \|series=Recent Economic Thought \|volume=73 \|publisher=Springer Science & Business Media \|year=2000 \|isbn=978-0-7923-7966-9 }}		* {{cite book \|editor1-last=Young \|editor1-first=Warren \|editor2-last=Zilberfarb \|editor2-first=Ben-Zion \|title=IS-LM and Modern Macroeconomics \|series=Recent Economic Thought \|volume=73 \|url=https://link.springer.com/book/10.1007/978-94-010-0644-6 \|publisher=Springer Science & Business Media \|year=2000 \|isbn=978-0-7923-7966-9 }}

	==External links==		==External links==