In search of a successor to IS-LM
J-P Danthine · Oxford Review of Economic Policy · 1997
After discussing the general characteristics that the successor to IS-LM should possess, this article argues that the business cycle research programme initiated by Kydland and Prescott (1992) is beginning to show a promising capacity to incorporate a broad range of modelling features into a logically consistent and theoretically satisfactory framework. This ability and the systematic process of model enrichment it permits make it possible to predict that the dynamic general equilibrium models developed around the neoclassical stochastic growth model - but possibly evolving towards friction-prone non-Walrasian models - will become the platform for a new neoclassical synthesis. Ultimately, a stochastic growth model incorporating [real and nominal macroeconomic] rigidities holds out the promise of a new synthesis in macroeconomics. (Campbell, 1994).