In many ways, the macroeconomics profession has come full circle, because many years ago the predominant model in the profession was the standard IS-LM model (one without microeconomic foundations). In the attached article, Paul Krugman defends the old school IS-LM model, arguing that it offers many valuable insights in a transparent fashion. While this article is somewhat dated, Krugman has written more recent papers and given speeches with a similar theme – basically that old school IS-LM can address most macroeconomic issues.
What are your thoughts? Is developing the full intertermporal framework worth the bother, or should we just use standard old school IS-LM? In particular, after all this work developing microeconomic foundations, we pretty much end up using an IS-LM model anyways. Does inclusion of microfoundations within the model really buy us anything?
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