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The Algebraic Galaxy of Simple Macroeconomic Models: A Hitchhiker’s Guide

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  • Evan C. Tanner

    (International Monetary Fund)

Abstract

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.

Suggested Citation

  • Evan C. Tanner, 2018. "The Algebraic Galaxy of Simple Macroeconomic Models: A Hitchhiker’s Guide," Open Economies Review, Springer, vol. 29(1), pages 177-209, February.
    • Handle: RePEc:kap:openec:v:29:y:2018:i:1:d:10.1007_s11079-017-9445-0
    DOI: 10.1007/s11079-017-9445-0
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    More about this item

    Keywords

    New Keynesian Model; IS Curve; Taylor Rule; Marshall-Lerner Condition;
    All these keywords.

    JEL classification:

    • A22 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Undergraduate
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications

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