New Keynesian DSGE Models and the IS-LM Paradigm

Arbeitspapier

New Keynesian DSGE models propose a dynamic and expectational version of the old IS-LM paradigm. Acknowledging that the Taylor rule as a substitute for the LM-curve has its merits we show that standard DSGE models do not model how the central bank achieves its targets. In filling this gap we make evident that models neglecting a store-of-value function of money but still assuming a Taylor rule are inconsistent. Our major point concerns the-so called new Keynesian IS-curve. We prove that DSGE models which typically rest on the assumption of representative agents are unable to derive the IS-curve. This implies that these models lack the capability to analyse the role of savings as a a gap in aggregate demand. By assuming overlapping generations we make evident how this shortcoming can be avoided. We also show how OLG models add a richer dynamics to the standard DSGE approach.

Show object

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IMK Working Paper ; No. 1/2010

Classification and Topics

• Classification: Wirtschaft
• Subject: Neukeynesianische Makroökonomik ; Dynamisches Gleichgewicht ; IS-LM-Modell ; Overlapping Generations ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Frische, Ulrich ; Größl, Ingrid
• Event: Veröffentlichung
• (who): Hans-Böckler-Stiftung, Institut für Makroökonomie und Konjunkturforschung (IMK)
• (where): Düsseldorf
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/105925
• URN: urn:nbn:de:101:1-201101312792