IS-LM-BP: An Inquest

IS-LM-BP: An Inquest

1. The early mathematical and geometric models of the open economy.

   • Metzler’s 1942 model with domestic prices, interest rate, and exchange rate fixed and no capital movements.
     • “Linear difference equations with constant coefficients”
     • Metzler’s 1951 paper “Wealth, Saving, and the Rate of Interest”—“The remodeled classical theory”
       • Two markets: goods and services, and securities, and a system of equations determining the equilibrium values of variables.
       • 2001 IMF Staff Papers article and his subsequent “Notes on the Development of the International Macroeconomic Model” (Mundell)
         • Mundell (1960) “foreign-balance schedule” for the foreign exchange market (FF) and the “internal balance sched- ule” for the goods and services market (XX)
           • The relationship be- tween the stability conditions of dynamics and the evaluation of dis- placements in comparative statics.

2. Mundell’s Models and Fleming’s Model in Comparative Perspective

   • • Mundell's 1960.rate systems and the nature of the paths to equilibrium and their relation Figure 1 to the extent of capital mobility, among other issues.
       • • Mundell’s 1961 Kyklos model in income–interest rate space
           • • Mundell’s 1961 Canadian Journal model
               • • Mundell’s 1963 Canadian Journal model

3. From Krueger to Niehans, 1965–75: Krueger’s 1965 Model and Michaely’s 1968 “IS-LL-BP” Adaptation

   • Dornbusch conclued that fixed and flexible rate models with IS-LM-BP: An Inquest 159 . imperfect and perfect capital mobility, but enabled the development of two-country models

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