IS-LM and the mutiplier: A dynamic general equilibrium model

Jean-Pascal Bénassy (1, 2)

1 PJSE - Paris-Jourdan Sciences Economiques
2 CEPREMAP - Centre pour la recherche économique et ses applications

We construct a dynamic general equilibrium model which displays the central features of the IS-LM model, and notably an income multiplier greater than one, so that crowding out does not occur. A key to this result is the conjunction of two features: price rigidities (as is usually expected), but also a non-Ricardian economy.

Keywords: IS-LM model; Dynamic stochastic general equilibrium models; Multiplier

Domains: Humanities and Social Sciences; Economics and Finance

Jean-Pascal Bénassy. IS-LM and the mutiplier: A dynamic general equilibrium model. Economics Letters, 2007, 96 (2), pp.189-195. ⟨10.1016/j.econlet.2006.12.028⟩. ⟨halshs-00754211⟩