Citation

Discussion Paper Details

Please find the details for DP3898 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Money and the Transmission Mechanism in the Optimizing IS-LM Specification

Author(s): Edward Nelson

Publication Date: May 2003

Keyword(s): monetary policy, money, optimizing IS-LM specification and transmission mechanism

Programme Area(s): International Macroeconomics

Abstract: This Paper discusses criticisms of the IS-LM framework in the macroeconomic literature of the last 40 years, and how the modern optimizing version of IS-LM addresses those criticisms. It is argued that models that include the optimizing IS-LM specification are legitimate vehicles for dynamic analysis: the evolution of nominal wages and prices is treated endogenously, and there is full recognition of the intertemporal nature of households? saving decisions. The optimizing version of IS-LM analysis remains vulnerable, however, to the monetarist critique: by recognizing an insufficient number of distinct assets, the IS-LM framework tends to understate the value of money as an indicator for monetary policy.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3898

Bibliographic Reference

Nelson, E. 2003. 'Money and the Transmission Mechanism in the Optimizing IS-LM Specification'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3898