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Type: Journal article
Title: IYLM: a General Theory-compatible replacement for ISLM
Author: Rogers, C.
O'Donnell, R.
Citation: Cambridge Journal of Economics, 2016; 40(1):349-364
Publisher: Oxford University Press (OUP)
Issue Date: 2016
ISSN: 1464-3545
Statement of
Rod O’Donnell and Colin Rogers
Abstract: The ISLM model, introduced in 1936–37 to provide interpretations of Keynes’s General Theory, subsequently emerged in its Hicks-Hansen form as the workhorse and ‘trained intuition’ of post-war macroeconomists. However, ISLM is an essentially orthodox model based on neoclassical foundations and fails completely as an adequate representation of central elements of Keynes’s macroeconomic thought. This article proposes IYLM as a replacement for ISLM, the new model being General Theory–compatible in that it is grounded only on key propositions in that work. Its purpose is to contribute, within the constraints of a two-market framework, to the resuscitation of Keynes’s macroeconomics as an alternative to the inadequacies of much current macroeconomics. The first part of the article derives the model and argues that those sympathetic to The General Theory can accept the IYLM framework whilst simultaneously rejecting ISLM. The second part shows that Hicks-Hansen ISLM is based on an income-augmented form of orthodox loanable funds theory.
Keywords: IYLM; ISLM; Keynes; Macroeconomics
Rights: © The Author 2015. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.
DOI: 10.1093/cje/beu082
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Economics publications

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