Modeling economic forces, power relations, and stock-flow consistency: a general constrained dynamics approach

Abstract

We present a differential-algebraic equation framework of constrained dynamics to implement monetary Stock-Flow Consistent (SFC) models. Agents exert forces on the variables according to their desire, for instance to gradually improve their utility. The parameter ‘economic power’ corresponds to their ability to assert their interest. In analogy to Lagrangian mechanics, system constraints from accounting identities generate additional constraint forces that lead to unintended dynamics. We exemplify the procedure using a simple SFC model and reveal its implicit assumptions about power relations and agents’ preferences.