Putting the IS-LM debate in context

Here is a response from Paul Krugman on the topicStephen Williamson’s post is too polemic for my tastes, but I find he nonetheless places this debate in useful perspective:

Generations of textbook writers found IS-LM a very convenient model to use in getting basic Keynesian ideas across to undergraduate students. However, frontier macroeconomic researchers did not take IS-LM seriously after the early 1970s. By about 1980, IS-LM had essentially disappeared from the top economics journals and from the top PhD programs in economics. But one could still find some version of IS-LM in undergraduate textbooks.

How is IS-LM used today? You do not see it in published macroeconomic research, as a framework for discussion among policymakers, or in PhD programs in economics. It is certainly not necessary to use it in teaching Keynesian economics to undergraduates. In the third edition of my intermediate macro textbook, you will not find an IS-LM model. I have found what I think are more straightforward and instructive ways to get Keynesian economics across, and to get it across in line with what modern Keynesian researchers actually do. For example, I do a version of a Keynesian coordination failure model that looks like what Roger Farmer did in the early 1990s, and an undergraduate version of a Woodford sticky-price model.

Williamson is correct.  There is more at the link, including some of the more polemic parts of the post.  An anonymous commentator adds:

The New Keynesian intermediate texts like Chad Jones have dispensed with IS/LM and replaced with the 3-equation IS-PC-MR (monetary rule) model.

Addendum: By the time the 1980s had rolled around, even Sir John Hicks had pretty much repudiated the IS-LM model, some partial detail is here.  Here is Brad DeLong on IS-LM in 2005; whatever the model is making predictions about, it is not the contemporary economy.


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