What Went Wrong with IS-LM/AS-AD Analysis--And Why

Ingo Barens

12 citations0/0 files storedRePEc: Research Papers in Economics

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Economic Theory and Policy Monetary Policy and Economic Impact Economic theories and models

Abstract

The current critical discussions of IS-LM/AS-AD models are approached from the perspective of Hicks’ original 1937 SI-LL model. The relevant features of this model are summarized and the geometrical representation of IS and LM curves in the original model and some of its variants is discussed. The cause and nature of the logical inconsistencies of textbook IS-LM/AS-AD models, pointed out in current discussions, are clarified and put into proper perspective. It is argued that within Hicksian IS-LM models these logical inconsistencies do not arise and that the conventional aggregate demand curve is not really needed to determine the price level.

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1937Mr. Keynes and the "Classics"; A Suggested Interpretation 1944Liquidity Preference and the Theory of Interest and Money 1994A Sticky-Price Manifesto 1939Full Recovery or Stagnation?1965A Survey of Inflation Theory 1977Keynes and the Classics 1956Aggregate Economic Analysis 1994The Effective Demand Fraud

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