The Model IS-LM as a Research Method for Economic Fluctuations of Bulgarian Economy
Authors
Keywords
model IS-LM, economic fluctuation, Bulgaria
Summary
The IS/LM model was born at the Econometric Conference held in Oxford during September, 1936. Roy Harrod, John R. Hicks, and James Meade all presented papers describing mathematical models attempting to summarize John Maynard Keynes' General Theory of Employment, Interest, and Money. Hicks, who had seen a draft of Harrod's paper, invented the IS/LM model. He later presented it in "Mr.Keynes and the Classics: A Suggested Interpretation" (Econometrica, April 1937). Hicks later agreed that the model missed important points from the Keynesian theory. The problem was that it presents the real and monetary sectors as separate, something Keynes attempted to transcend. In addition, an equilibrium model ignores uncertainty. A shift in the IS or LM curve will cause change in expectations, causing the other curve to shift. Hicks therefore created a new Hicks-Hansen IS-LM Model to resolve some of the problems. Most modern macroeconomists see the IS/LM model as being at best a first approximation for understanding the real world. Although the model is generally not taught at the graduate level, a few graduate programs (UNC Greensboro, Auburn University, Florida State, and West Virginia University) continue to use it as part of the macroeconomics curriculum. It is also still the dominant paradigm in undergraduate macroeconomics textbooks, although many dynamists would insist that it is past its prime even in an undergraduate context.
Pages: 18
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