Discussion Paper

No. 2017-20 | May 02, 2017
Macroeconomic dynamics and the IS puzzle


The authors solve the IS puzzle for the G7 countries. They find that five of the G7 countries have the expected significant negative relationship between the output gap and the real-rate gap; the time series of the remaining two show material deviation from expected IS-curve behavior. The authors show that the observed time dependence of the interaction between the output and real-rate gaps can be represented in a parsimonious and practical manner using the theory of anelasticity that unifies partial-adjustment specifications of the IS curve.

JEL Classification:

C22, E3, E32, E52, E61


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Cite As

Raymond J. Hawkins and Chau N. Nguyen (2017). Macroeconomic dynamics and the IS puzzle. Economics Discussion Papers, No 2017-20, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2017-20

Comments and Questions

Anonymous - Referee Report 1
August 31, 2017 - 07:46

see attached file

Raymond J. Hawkins and Chau N. Nguyen - Response to referee report 1
September 29, 2017 - 08:50

see attached file

Anonymous - Referee Report 2
October 16, 2017 - 12:09

The general idea of the paper is interesting and the investigation offers some new insights. However, several caveats need to be addressed by the author(s) before the paper merits publication. In particular, the contribution should be highlighted

1.) The introduction should highlight the contribution of the paper more clearly. ...[more]

... In the current version, it is not directly clear how the paper contributes to the literature.

2.) In this vein, the empirical findings should also be explicitly compared to previous empirical findings.

3.) Please provide more information on the underlying data and the conducted estimation method.

4.) Is it really suprising that time-variation is an important issue. Some more thoughts in the conclusion would be helpful.

Raymond J. Hawkins and Chau N. Nguyen - Response to referee report 2
November 01, 2017 - 08:07

see attached file