For the open economy, the workhorse model in intermediate textbooksstill is the Mundell-Fleming model, which basically extends theinvestment and savings, liquidity preference and money supply (IS-LM)model to open economy problems. The authors present a simple NewKeynesian model of the open...

Although the IS/LM-AS/AD model is still the central tool of macroeconomic teaching in most macroeconomic textbooks, it has been criticized by several economists. Colander (1995) demonstrated that the framework is logically inconsistent. Romer (2000) showed that it is unable to deal with a...

Can monetary policy trigger pronounced boom-bust cycles in house prices and create persistent business cycles? We address this question by building heuristics into an otherwise standard DSGE model. As a result, monetary policy sets off waves of optimism and pessimism (“animal spirits”) that...