APPLICATION OF THE IS-MP-IA MODEL IN THE MODERN MACROECONOMIC ANALYSIS

This paper discusses the IS-MP-IA model as a streamlined version of the standard IS-LM-AS model and its application in the modern macroeconomic analysis. Demands that the model has to fulfill in terms of consensus that has occurred recently in macroeconomic theory - the new neoclassical synthesis- are especially pronounced in its evaluation, which is related to the role of expectations of economic agents, monopolistic competition and monetary policy regime based on inflation targeting. The paper includes a comparative analysis of these two models and the analysis of the impact of supply and demand shocks in the IS-MP-IA model, in order to give an answer whether this model is consistent with modern conceptions of how economy works.

Key words: IS-MP-IA model, IS-LM model, expectations, New Neoclassical Synthesis, demand and supply shocks, monetary policy

JEL Classification: B41