Abstract
The stock-flow consistent (SFC) approach to macroeconomic dynamic modelling was developed in the 2000s by Godley and Lavoie (in Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth. Palgrave, New York, 2007a; Cambridge Journal of Economics, 31(1), 1–23, 2007b), who paved the way for the flourishing of SFC models. These models are based on four accounting principles (flow consistency, stock consistency, stock-flow consistency and quadruple book-keeping), which allow inferring a set of accounting identities. The latter are then coupled with a set of equations defining the equilibrium conditions. Finally, difference (or differential) stochastic equations are added to define the behaviour of each macro-sector (or agent) of the economy. SFC models’ coefficients can be calibrated to obtain a theoretical baseline scenario and/or estimated through standard econometric techniques. Baseline results are then compared with a variety of ‘possible worlds’ or shocks. This theoretical and analytical flexibility is the reason SFC models are used by economists with different theoretical backgrounds. While SFC models are affected by some limitations, we believe that advantages outdo weaknesses.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
