.I am embarrassed to say that this is my first time going through IS-LM! I assume that this would be something that a second (or maybe even first) year undergraduate would have encountered. I am only slightly absolved because I never studied undergraduate economics. It was covered, very briefly, in my MSc at the University of Edinburgh. However it wasn't stressed as being useful, and we weren't examined on it.
Having spent my entire day going through increasingly sophisticated versions of IS-LM, I feel pretty good. I feel like I learned quite a bit about how the macroeconomy works. I pose to my readers the following question: Why is it that some economists believe that IS-LM has been discredited?
I take as given that the economists in question are extremely intelligent and have thought deeply about the issues involved...so there must be some other reason. I was actually surprised that a Google search for: IS-LM "discredited" turned up (for the most part) fairly positive articles. If anyone has what they think is a convincing refutation of the IS-LM framework I would appreciate it if you send a pointer in my direction!
I will be teaching a very basic (and non-mathematical) version of the model in first year macroeconomics in a few weeks...
Update: Sean passed Tyler Cowen's critique of IS-LM to me via email. My quick take on Tyler's critiques: points 1 and 4 are well taken. Point 2 (and to a lesser extent point 5) would seem to implicitly assume that investment decisions are made solely on the basis of real and not nominal variables.
