More Insufferable AS-AD

[FAC_BROSSER@xxxxxxxxxxxxxxxx]

Peter,
     My apologies for my flip "textbook" remark.  Indeed
most intermediate macro presentations of ISLM are profoundly
flawed for reasons probably not worth getting into here.
     The issue of the "Keynes effect" boils down to the liquidity
preference demand for money diagram as it shows up in a standard
real-variable version of ISLM, which is not where the problems
(in my view) are.  The horizontal axis should be real money balances
and the vertical axis the real interest rate (to keep things simple
it would be best to assume zero inflation or perfect foresight
expectations; I am not arguing either of these are "realistic").
In the usual formulation, MS is vertical, controlled by the Fed
and the the l-p demand for money is downward-sloping.  An increase
in P reduces MS and raises the real interest rate.  As has already
been discussed to death, this assumes nominal money is not "logically
endogenous" and can be held constant by the Fed, even though it is
almost certainly empirically endogenous.
     I grant you that the J-curve complicates the international sub
effect story in the short-run.  But most of the time it turns
around after about six months which is certainly within policy
relevant time horizons.
Barkley Rosser
JMU