The Algebraic Galaxy of Simple Macroeconomic Models: A Hitchhiker’s Guide
May 24, 2017
Download PDF
More Formats on IMF eLibrary
Order a Print CopyDisclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Summary
Simple macroeconomic frameworks like the IS/LM have survived because they help us conceptualize complex problems while also providing ‘back of the envelope’ estimates of macroeconomic outcomes. Herein, a bare-bones New Keynesian extension of the IS/LM model yields solutions for core macro variables (output gap, inflation, interest rate, real exchange rate misvaluation)—expressed in percent. We then extend that standard model to also generate a corresponding set of demand-side elements—expressed in currency units. A key aim of the paper is to reconcile these two metrics in ways that also aid communication and intuition—including through IS/LM-style graphs.
Subject: Consumption, Exports, Output gap, Real exchange rates, Real interest rates
Keywords: exchange rate, WP
Pages:
41
Volume:
2017
DOI:
Issue:
123
Series:
Working Paper No. 2017/123
Stock No:
WPIEA2017123
ISBN:
9781484300619
ISSN:
1018-5941
