Saturday, October 08, 2011

Krugman on IS-LM

Paul defends the IS-LM model.  I agree completely!

In some circles, there is now a push to skip the IS-LM model in intermediate macro courses and teach students more modern dynamic macro.  Like Paul, I think that is a mistake.  In my intermediate macro book, I have added a chapter with a dynamic macro model (which one might consider a baby DSGE model).  But students are best equipped to appreciate this model after they understand IS-LM logic.

Updates: Mark Thoma reminds me that I have written on this topic before.  Steve Landsburg weighs in.