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On 'Money' in ISLM and AD/AS Models

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  • Thomas K. Rymes

    (Carleton University)

  • Colin Rogers

    (School of Economics, University of Adelaide)

Abstract

Hicks's ISLM model interpretation of Keynes's theory is subject to much controversy. In this paper, we focus upon the 'real balance' effect and its role in ISLM and AD/AS analyses. We shall argue that ISLM and AD/AS require 'nominal anchors'. We live in a world where, increasingly, the 'money' in the ISLM and AD/AS model no longer exists (as Keynes imperfectly understood in his TREATISE ON MONEy). There are no longer any nominal anchors, rather they have been replaced by discretionary policy. As Professor Ferris nicely sums up our position, we argue that central banks are fundamentals.

Suggested Citation

  • Thomas K. Rymes & Colin Rogers, 2000. "On 'Money' in ISLM and AD/AS Models," School of Economics and Public Policy Working Papers 2000-02, University of Adelaide, School of Economics and Public Policy.
    • Handle: RePEc:adl:wpaper:2000-02
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