Stock-Flow consistent model

Abstract: This paper integrates the theory of money and credit derived ultimately from Wicksell into the Keynesian theory of income determination, with assets allocated according to Tobinesque principles. The model deployed has much in common with the modern ‘endogenous money’ school initiated by Kaldor which emphasises the essential role played by credit in any real life economy, since production takes time and the future is always uncertain. New ground is broken methodologically because all the propositions are justified by simulations of a rigorous (60-equation) model, making it possible to pin down exactly why the results come out as they do. One conclusion of the paper is that there is no such thing as a supply of money distinct from the money which agents wish to hold, or find themselves holding. This finding is inimical, possibly in the end lethal, to the way macroeconomics is currently taught as well as to the neoclassical paradigm itself.

Abstract: The aim of the paper is to provide an overview of the current stock-flow-consistent (SFC) literature. Indeed, we feel the SFC approach has recently led to a blossoming literature, requiring a new summary after the work of Dos Santos and above all after the publication of the main reference work on the methodology, Godley and Lavoie’s Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth. The paper is developed along the following lines. First, a brief historical analysis investigates the roots of this class of models that can be traced as far back as 1949 and the work of Copeland. Second, the competing points of view regarding some of its main controversial aspects are underlined and used to classify the different methodological approaches followed in using these models. Namely, we discuss (i) how the models are solved, (ii) the treatment of time and its implication and (ii) the need (or not) for microfoundations. These results are then used in the third section of the paper to develop a bifocal perspective, which allows us to divide the literature reviewed according to both its subject and the methodology. We explore various topics such as financialisation, exchange rate modelling, policy implication, the need for a common framework within the post-Keynesian literature and the empirical use of SFC models. Finally, the conclusions present some hypotheses (and wishes) for the possible lines of development of SFC models.

Abstract: This paper integrates a stock-flow monetary accounting framework, as proposed by Godley and Cripps (1983) and Godley (1993, 1996, 1999), with Kaleckian models of growth, as proposed by Rowthorn (1981), Dutt (1990), and Lavoie (1995). Our stock-flow accounting is related to the social accounting matrices (SAM) originally developed by Richard Stone in Cambridge, with double-entry bookkeeping used to organize national income and flow of funds concepts. We present a consistent set of sectoral and national balance sheets where every financial asset has a counterpart liability, and budget constraints for each sector describe how the balance between flows of expenditure, factor income and transfers generate counterpart changes in stocks of assets and liabilities. These accounts are comprehensive in the sense that everything comes from somewhere and everything goes somewhere, or to put it more formally, all stocks and flows can be fitted into matrices in which columns and rows all sum to zero.1 Without this armature, accounting errors may pass unnoticed and unacceptable implications may be ignored.