The Algebraic Galaxy of Simple Macroeconomic Models: A Hitchhiker’s Guide
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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.
Series:
Working Paper No. 2017/123
Subject:
Consumption Exports Output gap Real exchange rates Real interest rates
English
Publication Date:
May 24, 2017
ISBN/ISSN:
9781484300619/1018-5941
Stock No:
WPIEA2017123
Pages:
41
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