<p>Yes, it is still used a recent example of IS-LM model used in literature is (<a href="https://www.sciencedirect.com/science/article/pii/S2590054419300077" rel="nofollow noreferrer">Bonyah et al. 2019</a>).</p>
<p>Also, it is important to understand those two are not substitutes for each other. IS-LM is a general equilibrium (GE) model. The way how you get dynamic stochastic general equilibrium (DSGE) model is that you take a general equilibrium model and add dynamism and uncertainty there.</p>
<p>As a student you were probably exposed more to the DSGE model based on real business cycle (RBC) model (which is based on Neoclassical GE models) as they are simpler, but New Keynesian DSGE models which are in essence DSGE version of IS-LM exists as well (see discussion of New Keynesian DSGE in <a href="https://ideas.repec.org/p/imk/wpaper/1-2010.html" rel="nofollow noreferrer">Frische &amp; Größl, 2010)</a> and are relatively widely used (in fact I would say that after 2008 they became increasingly popular in the literature).</p>
<p>You will see DSGE models dominating over GE models in the literature, but this is because GE models are mostly used to derive some theoretical insights into how economy works, whereas DSGE can be used for actual practical simulations or even forecasting. You can't make any serious forecasts  with theoretical GE model - no matter whether it is IS-LM GE model or some other one (only predictions about variables and relationship but that should not be confused with forecasting). Consequently, you will see DSGE models dominating because it makes sense to make separate paper about DSGE model calibrated for let's say economy of the Netherlands as in <a href="https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.974.6910&amp;rep=rep1&amp;type=pdf" rel="nofollow noreferrer">Lafourcade and de Wind (2012)</a> (coincidentally they actually apply IS-LM based DSGE), whereas applying any GE whether IS-LM or some Neoclassical one to a particular country would not be very useful (at least not much beyond what you can learn from the general version already). So for every one theoretical GE model, no matter what variety, you can easily find more than dozen DSGE models.</p>

CC BY-SA 4.0
2021-03-17T17:47:47.947Z
One needs a very permissive notion of general equilibrium models to count IS-LM among it. Also, if you model the same commodity at different times and states of the world as different commodities, the standard Arrow-Debreu model can model time and uncertainty. The IS-LM model plays no serious role in current research, and the cited paper is not from an economics journal.
Michael Greinecker
CC BY-SA 4.0
2021-03-17T18:17:05.800Z
@MichaelGreinecker care to elaborate on the first sentence? That might apply maybe to canonical versions but I think that would be too harsh for modern variations. Also, you are right that it does not play big role in current research but that is primarily because most of modern macroeconomics is empirical. In theoretical research it still plays a role, you can just have look at Woodford Interest & Prices where that is one of the workhorse models and papers post 2000 using it are cited there. Also note, modern versions have rigorous microfoundations and can be viewed as special cases of
1muflon1
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2021-03-17T18:17:39.137Z
walrasian model.
1muflon1
CC BY-SA 4.0
2021-03-17T18:22:08.390Z
The original IS-LM model, introduce by Sir John Hicks in his 1937 paper "Mr. Keynes and the 'Classics'", and still the go to model in US-intermediate macro books is not a general equilibrium model. It is of course true that there are general equilibrium models that give rise to the same equations, but they are a different model.
Michael Greinecker
CC BY-SA 4.0
2021-03-17T18:29:13.413Z
@MichaelGreinecker I agree on that but IS-LM ‘label’ is commonly applied to models that go beyond that. I think that even Lucas applied that term to his macro model but I would have to double check that. You are right about the old Hicks model but that one did not even have micro foundations and it is miles away from contemporary interpretations that are micro founded and based on rational utility maximizing households and profit maximizing firms and rational expectations etc
1muflon1
CC BY-SA 4.0
2021-03-17T18:36:09.050Z
The paper you linked to by Bonyah et al is not a general equilibrium model. I think your point is fundamentally right, but in the context of a question that seems to be along the lines of "does the IS-LM model I learned in macro still matter now that we have the fancy DSGE stuff?" , I think it would be better to make explicit that the IS-LM equations can be derived in full DSGE models.
Michael Greinecker
CC BY-SA 4.0
2021-03-17T18:43:06.143Z
@MichaelGreinecker I will check the paper I will consider replacing it with better citation I don’t remember but I likely wanted to just find the most recent example from google scholar. Also you are right about the **undergraduate** textbook version of IS-LM model although I interpreted the question rather differently given the question is about advanced macro class, I interpreted it as if IS-LM has some place in contemporary research, perhaps I am misjudging the question,  English is high context language but I still think the answer above is helpful
1muflon1
CC BY-SA 4.0
2021-03-17T18:45:38.950Z
Sure, I hope my comment did not come off as too negative. I simply interpreted OPs intend differently, and there is not much context given.
Michael Greinecker
CC BY-SA 4.0
2021-03-17T18:50:44.150Z
@MichaelGreinecker no worries I took in good faith and in the NL where I am such direct comments are part of academia so I am used to that
1muflon1
CC BY-SA 4.0
2021-01-29T09:59:02.417Z
2021-01-29T10:13:23.543Z
2021-01-29T10:13:23.543Z
1muflon1
<p>Since i had my &quot;Introduction to advanced macroeconomics&quot; and discovered DSGE i've been wondering if IS-LM is used in research, i know it was used in the 80's or so, but now?</p>

<macroeconomics><dsge><rbc>
Is IS-LM still used in research or we learn it just to understand basic macro?
Ben
# Is IS-LM still used in research or we learn it just to understand basic macro?

(Asked by: username_0 on 2021-01-29)

Since i had my "Introduction to advanced macroeconomics" and discovered DSGE i've been wondering if IS-LM is used in research, i know it was used in the 80's or so, but now?

**Tags:** macroeconomics, dsge, rbc


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## 1 answers

### Answer by username_1 on 2021-01-29. Score: 1 | Accepted answer

Yes, it is still used a recent example of IS-LM model used in literature is ([Bonyah et al. 2019](https://www.sciencedirect.com/science/article/pii/S2590054419300077)).

Also, it is important to understand those two are not substitutes for each other. IS-LM is a general equilibrium (GE) model. The way how you get dynamic stochastic general equilibrium (DSGE) model is that you take a general equilibrium model and add dynamism and uncertainty there.

As a student you were probably exposed more to the DSGE model based on real business cycle (RBC) model (which is based on Neoclassical GE models) as they are simpler, but New Keynesian DSGE models which are in essence DSGE version of IS-LM exists as well (see discussion of New Keynesian DSGE in [Frische & Größl, 2010)](https://ideas.repec.org/p/imk/wpaper/1-2010.html) and are relatively widely used (in fact I would say that after 2008 they became increasingly popular in the literature).

You will see DSGE models dominating over GE models in the literature, but this is because GE models are mostly used to derive some theoretical insights into how economy works, whereas DSGE can be used for actual practical simulations or even forecasting. You can't make any serious forecasts with theoretical GE model - no matter whether it is IS-LM GE model or some other one (only predictions about variables and relationship but that should not be confused with forecasting). Consequently, you will see DSGE models dominating because it makes sense to make separate paper about DSGE model calibrated for let's say economy of the Netherlands as in [Lafourcade and de Wind (2012)](https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.974.6910&rep=rep1&type=pdf) (coincidentally they actually apply IS-LM based DSGE), whereas applying any GE whether IS-LM or some Neoclassical one to a particular country would not be very useful (at least not much beyond what you can learn from the general version already). So for every one theoretical GE model, no matter what variety, you can easily find more than dozen DSGE models.

> **Comments:**
> **username_2**: One needs a very permissive notion of general equilibrium models to count IS-LM among it. Also, if you model the same commodity at different times and states of the world as different commodities, the standard Arrow-Debreu model can model time and uncertainty. The IS-LM model plays no serious role in current research, and the cited paper is not from an economics journal.  
> **username_1**: @MichaelGreinecker care to elaborate on the first sentence? That might apply maybe to canonical versions but I think that would be too harsh for modern variations. Also, you are right that it does not play big role in current research but that is primarily because most of modern macroeconomics is empirical. In theoretical research it still plays a role, you can just have look at Woodford Interest & Prices where that is one of the workhorse models and papers post 2000 using it are cited there. Also note, modern versions have rigorous microfoundations and can be viewed as special cases of  
> **username_1**: walrasian model.  
> **username_2**: The original IS-LM model, introduce by Sir John Hicks in his 1937 paper "Mr. Keynes and the 'Classics'", and still the go to model in US-intermediate macro books is not a general equilibrium model. It is of course true that there are general equilibrium models that give rise to the same equations, but they are a different model.  
> **username_1**: @MichaelGreinecker I agree on that but IS-LM ‘label’ is commonly applied to models that go beyond that. I think that even Lucas applied that term to his macro model but I would have to double check that. You are right about the old Hicks model but that one did not even have micro foundations and it is miles away from contemporary interpretations that are micro founded and based on rational utility maximizing households and profit maximizing firms and rational expectations etc  
> **username_2**: The paper you linked to by Bonyah et al is not a general equilibrium model. I think your point is fundamentally right, but in the context of a question that seems to be along the lines of "does the IS-LM model I learned in macro still matter now that we have the fancy DSGE stuff?" , I think it would be better to make explicit that the IS-LM equations can be derived in full DSGE models.  
> **username_1**: @MichaelGreinecker I will check the paper I will consider replacing it with better citation I don’t remember but I likely wanted to just find the most recent example from google scholar. Also you are right about the **undergraduate** textbook version of IS-LM model although I interpreted the question rather differently given the question is about advanced macro class, I interpreted it as if IS-LM has some place in contemporary research, perhaps I am misjudging the question,  English is high context language but I still think the answer above is helpful  
> **username_2**: Sure, I hope my comment did not come off as too negative. I simply interpreted OPs intend differently, and there is not much context given.  
> **username_1**: @MichaelGreinecker no worries I took in good faith and in the NL where I am such direct comments are part of academia so I am used to that  

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