Can Traditional IS-LM Model Explain the European Debt Crisis?

Abstract

Copyright: © 2012 Kong Y. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited. Since from December 2009, when big three rating agencies started to downgrade Greek sovereign debt, the European debt crisis has lasted for over two years. Mass reports are given from the perspectives of fiscal deficit, default of sovereign debt, financial aid from European Central Bank (ECB) and International Monetary Fund (IMF) and public protest, but reports related to the comprehensive analysis of root of the European debt crisis are quite few. Actually, the nature of the European debt problems and Euro-Zone countries jointly-aid measures provided for countries in crisis can be easily analyzed and evaluated using traditional IS-LM model and its observation data from the economics perspective.