----------------- HES POSTING ----------------- 
There are three aspects to AD-AS: history, relevance & textbook use and adequacy as a
Keynesian (GT) model. John King's (JPKE) article is the best on history.  However AD-AS
was first popularised with excellent expositions by Dornbusch and Fischer (DF) and a
little later by Michael Parkin but their derivations differ.
 
David Colander (1995) in the Journal of Economic Perspectives and myself, a few years
earlier (1991) in the Australian Economic Papers are perhaps the first to point out some
logical and conceptual problems with AD-AS. Our perspectives are different. As David said
there is no market for such criticisms and others generally ignore these criticisms.
 
In my view the DF version can be salvaged for textbook use, but labelling the downward and
upward curves as AD and AS is inappropriate. In such a model AD-AS is a four-market GE
model. AD is a three-market equilibrium curve of the goods market (with sluggish price
adjustments-Hick's original assumption in ISLM), money and bond markets. AS is the labour
market equilibrium curve. Its dynamics need more careful expositions than straightforward
analogies to a single (flex-price) goods market. In the past, this analogy lead David
Rowan to propose a kinked AD curve. Others eg. Forstater Mathew in this forum, raised
doubts on whether AD always slopes downwards. Some of these problems are examined in the
volume I have edited, "Aggregate Demand and Supply" Macmillan/St.Martin's Press, 1998.
 
The third aspect is whether the salvaged DF model corresponds to the original Keynesian
(GT) model. I doubt that. The salvaged model is a special case of the flex-price GE model,
like the ISLM with fixed prices or sluggish price adjustments. But it seems to be a more
relevant and realistic model. Those of us unhappy with this do not seem to have developed,
as yet, a widely acceptable alternative. Existing alternatives, like the salvaged model,
are special cases of sorts and/or not helpful frameworks for improvements in macro theory.
 
 
 
 
------------ FOOTER TO HES POSTING ------------ 
For information, send the message "info HES" to [log in to unmask]