Abstract
Much teaching of intermediate macroeconomics uses the IS-LM-AS or AD-AS approach. This is far removed both from the practice of interest rate setting, inflation-targeting central banks and from the models that are taught in graduate courses. Modern monetary macroeconomics is based on what is increasingly known as the 3-equation New Keynesian model: IS curve, Phillips curve and interest rate-based monetary policy rule (IS-PC-MR). This is the basic analytical structure of Michael Woodford’s book Interest and Prices published in 2003 and, for example, of the widely cited paper ‘The New Keynesian Science of Monetary Policy’ by Clarida et al. published in the Journal of Economic Literature in 1999. A recent graduate textbook treatment is Galí (2008). Much of this literature is inaccessible to undergraduates and non-specialists. Our aim is to show how this divide can be bridged in a way that retains the tractability and policy-friendliness of the old approach yet fits the institutional realities of contemporary policy-making and opens the way to the more advanced literature.
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References
Carlin, W. and Soskice, D. (2005), ‘The 3-Equation New Keynesian Model — A Graphical Exposition’, Contributions to Macroeconomics, 5(1), art. 13, 1–36.
Carlin, W. and Soskice, D. (2006), Macroeconomics: Imperfections, Institutions and Policies, Oxford: Oxford University Press.
Clarida, R., Galí, J., and Gertler, M. (1999), ‘The Science of Monetary Policy: A New Keynesian Perspective’, Journal of Economic Literature, 37(4), 1661–707.
Galí, J. (2008), Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework, Princeton: Princeton University Press.
Woodford, M. (2003), Interest and Prices: Foundations of a Theory of Monetary Policy, Princeton: Princeton University Press.
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© 2009 Wendy Carlin and David Soskice
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Carlin, W., Soskice, D. (2009). Teaching Intermediate Macroeconomics using the 3-Equation Model. In: Fontana, G., Setterfield, M. (eds) Macroeconomic Theory and Macroeconomic Pedagogy. Palgrave Macmillan, London. https://doi.org/10.1007/978-0-230-29166-9_2
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DOI: https://doi.org/10.1007/978-0-230-29166-9_2
Publisher Name: Palgrave Macmillan, London
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