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

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  • Mr. Evan C Tanner

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.

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  • Mr. Evan C Tanner, 2017. "The Algebraic Galaxy of Simple Macroeconomic Models: A Hitchhiker’s Guide," IMF Working Papers 2017/123, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2017/123
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=44911
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    Cited by:

    1. Bofinger, Peter & Ries, Mathias, 2017. "Excess saving and low interest rates: Theory and empirical evidence," CEPR Discussion Papers 12111, C.E.P.R. Discussion Papers.

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    Keywords

    WP; exchange rate;

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