The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd


  • Steven N. Durlauf
  • Donald D. Hester
Reference work entry


The IS–LM model is a short-run macroeconomic analytical construct for studying an economy with idle productive resources. The diagram has been especially influential because its constituent curves are loci on which the goods market (IS curve) and the money market (LM curve) are respectively in equilibrium, making it possible to infer changes in fiscal policy and monetary policy, both separate and simultaneous. The model is prominent in elementary and intermediate macroeconomic textbooks, yet it fails to accommodate the main features of modern macroeconomic theory, although modern dynamic models are sometimes interpreted as having IS–LM type features.


Asset price equilibrium Bretton Woods System Central bank independence Crowding out Deflation Econometric Society Expectations Federal Reserve System Fiscal drag Fiscal policy Fleming, J. Floating exchange rate General equilibrium Government budget constraint Hicks, J. Inflation Inflationary expectations International capital markets IS–LM model Kahn, R. Keynes, J. M. Liquidity trap Lump sum taxes Macroeconomic volatility Marshall–Lerner condition Microfoundations Monetarism Monetary policy Monetary policy rules Money demand Money supply Mundell, R. Mundell–Tobin effect Open market operations Pigou effect Price control Progressive taxation Real balance effect Robinson, J. Stabilization policy Sticky prices tâtonnement Taxation of income Taylor rule Uncertainty Walras’s Law 

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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Steven N. Durlauf
    • 1
  • Donald D. Hester
    • 1
  1. 1.