Abstract
The IS-LM-BP/AD-AS Macroeconomic Model for Bhutan is a semi-structural policy framework developed to support macroeconomic analysis in Bhutan's open-economy context. The model brings together the goods market, money market, balance of payments, aggregate demand and short-run aggregate supply into a single analytical structure. It is designed to help assess how external shocks, fiscal policy, liquidity conditions, foreign-exchange availability and price pressures interact within Bhutan's fixed exchange-rate environment.
This technical paper provides a concise overview of how the model is adapted to Bhutan's economic structure, including its import dependence, hydropower-linked external flows, role of public investment and macro-fiscal policy setting. It explains the model's core blocks, data foundations, transmission channels, policy applications and governance standards for responsible use. Detailed simulations and empirical results are treated separately in research-oriented outputs.
Key Features
IS Curve — Goods Market
Captures goods-market equilibrium by linking real output to consumption, investment, government expenditure and the trade balance.
LM Curve — Money Market
Represents liquidity and money-market conditions, with interpretation adapted to Bhutan's pegged exchange-rate environment and limited monetary-policy autonomy.
BP Curve — External Sector
Captures external-sector pressures through the relationship between trade balance, liquidity conditions, investment, interest-rate indicators and foreign-exchange availability.
AD-AS Integration
Links the IS-LM-BP framework to aggregate demand and short-run aggregate supply, allowing the model to connect output conditions with inflation and cost-pressure channels.
Fiscal Policy transmission
Reflects the role of government expenditure and public investment as key demand channels in Bhutan's macroeconomic setting.
Hydropower and External Linkages
Recognizes the importance of hydropower-linked external receipts, import dependence and foreign-exchange buffers in shaping Bhutan's external-sector resilience.
Exchange Rate Regime
Interprets monetary and external-sector transmission in the context of Bhutan's exchange-rate anchor with the Indian Rupee, where liquidity management and external buffers play central roles.
Policy Scenario Analysis
Provides a transparent framework for structured macro-fiscal diagnostics, external-shock assessment, inflation monitoring and policy dialogue.
Downloads
Model code & data files
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Available upon request