The ADAS Model: Two into One Won’t Go

Abstract

It has for some time been the almost universal fashion, amongst authors of intermediate macroeconomics textbooks, to employ the aggregate demand and aggregate supply (ADAS) model to explain the determination of aggregate output and the price level. Perusal of a representative selection of such texts reveals that most — all but three out of fifteen surveyed — make use of a version, or versions, of ADAS.¹ Recently however dissident voices have been raised in criticism of the propriety of relying on the ADAS construction. Among those who have drawn attention to the inherent inconsistency of the standard model are Rao (1991), Barro and Grilli (1994), Colander (1995, 1996), Nevile and Rao (1996) and Grieve (1996). Colander, for one, does not mince words (1995, p.170): “ADAS does not fulfil the minimum requirement of a model: logical consistency. Its component parts are derived from models that reflect different, and inconsistent models of the economy.” This chapter seeks to set the problem of the ADAS model in the context of the development of macro theory.

I am grateful to Eric Rahim for valuable discussion of various drafts on the subject of ADAS.

The texts examined were: Abel and Bernanke (1996), Barro (1990), Barro and Grilli (1994), Barron et. al., (1989), Branson (1989), Brown (1995), Burda and Wyplosz (1993), Dornbusch and Fischer (1994), Froyen (1993), Gordon (1993), Levacic and Rebman (1982), Mankiew (1994), Miller and Pulsinelli (1986), Parkin and Bade (1982) and Sachs and Larrain (1993); of these the only exceptions not using ADAS were Barro (1990), Barro and Grilli (1994) and (introducing but not endorsing the model) Dornbusch and Fischer (1994).