Stock-flow consistent model
Stock-flow consistent models (SFC) are a family of macroeconomic models based on a rigorous accounting framework, that seeks to guarantee a correct and comprehensive integration of all the flows and the stocks of an economy. These models were first developed in the mid-20th century but have recently become popular, particularly within the
Background and history
The ideas for an accounting approach to macroeconomics go back to
James Tobin and his collaborators used features of stock-flow consistent modelling including the social accounting matrix and discrete time to develop a macroeconomic model that integrated financial and non-financial variables.[1] He outlined the following distinguishing features of his approach in his Nobel lecture[9]
- Modelling changes between discrete short-run time periods rather than a long run equilibrium
- Tracking changes in stocks of assets held by different groups
- Multiple assets with different rates of return,
- Modelling of monetary policy operations
- Subjecting the demand functions to "adding up constraints"
Also
The current SFC models mainly emerged from the separate economic tradition of the
The models gained popularity at the beginning of the 21st century and especially after the beginning of the
While ecological aspects were not considered by post-Keynesian authors like Godley or Lavoie, SFC models are now widely used within
Current researchers in the SFC approach to macroeconomic modelling are based in University of Limerick, Levy Economics Institute and University of Oxford.
Structure of the models
SFC models usually consist of two main components: an accounting part and a set of equations describing the laws of motion of the system. The consistency of the accounting is ensured by the use of three matrices: i) the aggregate balance sheets, with all the initial stocks, ii) the transaction flow, recording all the transactions taking places in the economy (e.g. consumption, interests payments); iii) the stock revaluation matrix, showing the changes in the stocks resulting from the transactions (the transaction flow and the stock revaluation matrix are often merged in the full integration matrix). The matrices are built respecting intuitive principles. Someone's asset is someone else's liability and someone's inflow is someone else's outflows. Furthermore, each sector and the economy as a whole must respect their budget constraint. No fund can come from (or end up) nowhere.
The second component of SFC models, the behavioural equations, include the main theoretical assumption of the model. Most of the papers in the existing literature are based on post-Keynesian theory. However, the behavioural equations are not restricted to a single school of thought.[nb 1]
Most SFC models are formulated in discrete time,
Simple models can be solved analytically and investigated by means of concepts of dynamical system theory such as bifurcation analysis.
Advantages and disadvantages
The comprehensive accounting framework has several advantages. Tracking all the monetary flows taking place in an economy and the way they accumulate, allows for a consistent integration of the real and the financial side of the economy (for a detailed discussion see Godley and Lavoie, 2007). Furthermore, as balance sheets are updated in any period, SFC models can be used to identify unsustainable processes, for example a prolonged deficit of a sector will result in an unsustainable stock of debt. These models were used by Wynne Godley in forecasting, showing promising results.[40] Moreover, from a modelling perspective, the consistent accounting framework prevents the modellers from leaving "black holes" i.e., unexplained parts of the model.
Example of SFC model
Flow of funds between sectors in a closed economy
Households | Firms | Government | Rest of the World | Σ | |
---|---|---|---|---|---|
Consumption | -C | +C | 0 | ||
Govt. Expenditures | +G | -G | 0 | ||
[OUTPUT] | [Y] | ||||
Wages | +W | -W | 0 | ||
Taxes | -T | +T | 0 | ||
Changes in Money | -ΔHh | +ΔHs | 0 | ||
Σ | 0 | 0 | 0 |
The above table shows the
The model structure
Once the accounting framework is fulfilled then the structure of the model, based on
Y = C + G
T = θY
YD = Y – T
C = α1 Y + α2 Ht-1
ΔHs = G – T
ΔHh = YD – C
H = ΔH + Ht-1
Y (Income), C (Consumption), G (Government Expenditures), T (Taxes), YD (Disposable Income), ΔH (Changes in stock of money) and θ is the tax rate on the income of household sector. α1 is the household consumption out of disposable income. α2 is the household consumption out of previous wealth.
The SFC models are solved in different ways depending on the aspect of research but in general initial values are assigned to the stocks and then the model is calibrated or estimated.
Sources
- ISBN 978-0-230-30184-9.
- Dimitri B. Papadimitriou, Gennaro Zezza: Contributions in Stock-flow Modeling: Essays in Honor of Wynne Godley. Palgrave Macmillan, London 2012, .
- Eugenio Caverzasi, Antoine Godin: Post-Keynesian stock-flow-consistent modelling: a survey. In: Cambridge Journal of Economics 39(1), 2015, pp. 157–187, doi:10.1093/cje/beu021.
- Michalis Nikiforos, Gennaro Zezza: Stock-Flow Consistent Macroeconomics Models: A Survey. In: Journal of Economic Surveys 31(5), 2017, pp. 1204–1239, doi:10.1111/joes.12221.
- Emilio Carnevali, Matteo Deleidi, Riccardo Pariboni, Marco Veronese Passarella: Stock-Flow Consistent Dynamic Models: Features, Limitations and Developments. In: Philip Arestis, Malcolm Sawyer (eds.): Frontiers of Heterodox Macroeconomics, Palgrave Macmillan, Cham 2019, pp. 223–276. doi:10.1007/978-3-030-23929-9 6.
- Oliver Richters, Erhard Glötzl: Modeling economic forces, power relations, and stock-flow consistency: a general constrained dynamics approach. In: Journal of Post Keynesian Economics, 2020, doi:10.1080/01603477.2020.1713008
Notes
References
- ^ a b c d e f g h i j Eugenio Caverzasi, Antoine Godin: Post-Keynesian stock-flow-consistent modelling: a survey In: Cambridge Journal of Economics 39(1), 2015, pp. 157–187, doi:10.1093/cje/beu021.
- ^ a b Michalis Nikiforos, Gennaro Zezza: Stock-Flow Consistent Macroeconomics Models: A Survey. In: Journal of Economic Surveys 31(5), 2017, pp. 1204–1239, doi:10.1111/joes.12221.
- ^ Knut Wicksell: Interest and Prices. Augustus M. Kelley Publishers, New York 1936/1898.
- ^ John Maynard Keynes: The General Theory of Employment, Interest and Money. Palgrave Macmillan, London 1936.
- ^ a b c Emilio Carnevali, Matteo Deleidi, Riccardo Pariboni, Marco Veronese Passarella: Stock-Flow Consistent Dynamic Models: Features, Limitations and Developments. In: Philip Arestis, Malcolm Sawyer (eds.): Frontiers of Heterodox Macroeconomics, Palgrave Macmillan, Cham 2019, pp. 223–276. doi:10.1007/978-3-030-23929-9 6.
- ^ Dirk Ehnts: The balance sheet approach to macroeconomics. In: Samuel Decker, Wolfram Elsner, Svenja Flechtner (eds.): Principles and Pluralist Approaches in Teaching Economics. Routledge, London / New York 2019, pp. 243–255, doi:10.4324/9781315177731-16.
- JSTOR 240684.
- JSTOR 2720888.
- ^ James Tobin: Money and finance in the macro-economic process, Nobel Memorial Lecture, 1981.
- OCLC 491474972.
- JSTOR 1907357.
- .
- ISBN 978-3161509551.
- ^ C.H. Dos Santos. "Notes on the Stock Flow Consistent Approach to Macroeconomic Modeling" (PDF). Retrieved 14 December 2014.
- ^ Claudio H. Dos Santos, Gennaro Zezza: A simplified, 'benchmark', Stock-Flow Consistent Post-Keynesian growth model. In: Metroeconomica 59(3), 2008, pp. 441–478, doi:10.1111/j.1467-999X.2008.00316.x
- ^ Wynne Godley, Francis Cripps: Macroeconomics. Oxford University Press 1983.
- ISBN 978-0-230-30184-9.
- ^ a b Oliver Richters, Andreas Siemoneit: Consistency and Stability Analysis of Models of a Monetary Growth Imperative. In: Ecological Economics 136, 2017, pp. 114–125, doi:10.1016/j.ecolecon.2017.01.017.
- ^ Gennaro Zezza: Godley and Graziani: Stock-flow Consistent Monetary Circuits. In: Dimitri B. Papadimitriou, Gennaro Zezza (eds.): Contributions in Stock-flow Modeling. Palgrave Macmillan, Basingstoke, pp. 154–172, doi:10.1057/9780230367357 8.
- ^ a b Oliver Richters, Erhard Glötzl: Modeling economic forces, power relations, and stock-flow consistency: a general constrained dynamics approach. In: Journal of Post Keynesian Economics, 2020, doi:10.1080/01603477.2020.1713008.
- ^ Wynne Godley: Money, finance and national income determination: an integrated approach, 1996, Working Paper 167, The Levy Economics Institute of Bard College.
- ^ a b c Dirk J. Bezemer: Understanding financial crisis through accounting models. In: Accounting, Organizations and Society 35(7), 2010, pp. 676–688, doi:10.1016/j.aos.2010.07.002.
- ^ a b Michalis Nikiforos, Gennaro Zezza: Stock-flow Consistent Macroeconomic Models: A Survey. Levy Economics Institute of Bard College, Working Paper 891, 2017.
- .
- Randall Wray: Is goldilocks doomed? In: Journal of Economic Issues 34(1), 2000, pp. 201–206, doi:10.1080/00213624.2000.11506253.
- ^ Wynne Godley, Gennaro Zezza: Debt and lending: A Cri de Coeur. Levy Institute at Bard College Policy Notes 4, 2006.
- The American Economic Review 98(2), 2008, pp. 236–240, doi:10.2307/29730026.
- ^ Edwin Le Heron: Confidence and financial crisis in a post-Keynesian stock flow consistent model. In: European Journal of Economics and Economic Policies: Intervention 8(2), 2011, pp. 361–387, doi:10.4337/ejeep.2011.02.09.
- Journal of Economic Behavior & Organization 83(3), 2012, pp. 570–582, doi:10.1016/j.jebo.2012.05.011.
- ^ Eugenio Caverzasi, Antoine Godin: Financialisation and the sub-prime crisis: a stock-flow consistent model. In: European Journal of Economics and Economic Policies: Intervention 12(1), 2015, pp. 73–92, doi:10.4337/ejeep.2015.01.07.
- ^ a b c d e Matthew Berg, Brian Hartley, Oliver Richters: A Stock-Flow Consistent Input-Output Model with Applications to Energy Price Shocks, Interest Rates, and Heat Emissions. In: New Journal of Physics 17(1), 2015, 015011, doi:10.1088/1367-2630/17/1/015011.
- ^ a b Yannis Dafermos, Maria Nikolaidi, Giorgos Galanis: A stock-flow-fund ecological macroeconomic model. In: Ecological Economics 131, 2017, pp.191–207, doi:10.1016/j.ecolecon.2016.08.013.
- ^ Yannis Dafermos, Maria Nikolaidi, Giorgos Galanis: Climate change, financial stability and monetary policy. In: Ecological Economics 152, 2018, pp. 219–234, doi:10.1016/j.ecolecon.2018.05.011.
- ^ a b Jonathan Barth, Oliver Richters: Demand-driven ecological collapse: a stock-flow fund-service model of money, energy, and ecological scale. In: Samuel Decker, Wolfram Elsner, Svenja Flechtner (eds.): Principles and Pluralist Approaches in Teaching Economics. Routledge, London / New York 2019, pp. 169–190, doi:10.4324/9781315177731-12.
- Joseph E. Stiglitz: Agent Based-Stock Flow Consistent Macroeconomics: Towards a Benchmark Model. In: Journal of Economic Dynamics and Control 69, 2016, pp. 375–408, doi:10.1016/j.jedc.2016.06.001.
- ^ Stephen Kinsella, Matthias Greiff, Edward J. Nell: Income distribution in a stock-flow consistent model with education and technological change. In: Eastern Economic Journal 37(1), 2011, pp. 134–149, doi:10.1057/eej.2010.31.
- ^ Jung Hoon Kim, Marc Lavoie: A two-sector model with target-return pricing in a stock-flow consistent framework. In: Economic Systems Research 28(3), 2016, pp. 403–427, doi:10.1080/09535314.2016.1196166.
- ^ Claudio H. Dos Santos: Cambridge and Yale on Stock-Flow Consistent Macroeconomic Modeling. Department of Economics, New School University, New York 2002.
- Journal of Economic Behavior & Organization 74(3), 2010, pp. 163–186, doi:10.1016/j.jebo.2010.03.015.
- ^ Wynne Godley (1999). "Seven Unsustainable Processes" (PDF). Special Report.
- ^ Wynne Godley, Marc Lavoie: Monetary Economics, Palgrave MacMillan 2007.
External links
- Lavoie, Marc "Stock Flow Consistent Modeling", video and slides