Stock-flow Consistent Model Research Articles

Debt hierarchy: Autonomous demand composition, growth and indebtedness in a Supermultiplier model

In Supermultiplier models, autonomous demand drives growth, and business investment is induced by income, responding to the capital stock adjustment principle in the long run. As the financial side of these models needs further development, we build a stock-flow consistent (SFC) Supermultiplier model with two sources of debt-financed autonomous demand (government and household consumption), stressing the interplay between households, firms, and government indebtedness and growth. We explore (a) the model’s stability conditions and their relation to real and financial variables and (b) autonomous demand growth and composition effects over debt-to-output ratios, mainly in the long run. Results show that (i) the model generates financial instability scenarios; (ii) government expenditures may stabilise households’ indebtedness. We should rethink the role of fiscal policy, focusing on its potential to stabilise private debt.

The Distributive Monetary Analysis of a (un)Sustainable Economy

ABSTRACT This article is a post-Keynesian stock flow consistent (PK-SFC) model that analyses the dynamics of an economy characterised by several — often individually studied — features of PK-SFC studies together with some innovative aspects. In particular, we investigate the income and wealth distribution between two social classes, capitalists and workers, after a period of a crisis subject to different policy scenarios. Non-financial firms but also government can undertake investments decisions and both accumulate capital. Finally, we consider the workers' and capitalists' consumption behaviour that contributes to produce (un)sustainable paths. Our model is built upon Bibi (2020, 2021) within an endogenous money framework and is calibrated using available data for major advanced economies. Simulations are conducted to question the different government fiscal policies to reduce unemployment boosting the economic activity, to obtain a more equitable distribution between social classes while obtaining those goals in a sustainable way.

Assessing the economic consequences of an energy transition through a biophysical stock-flow consistent model

The biophysical foundations of socio-economic systems are underrepresented in the vast majority of macroeconomic models. This lack is particularly troublesome when considering the links between energy, matter and the economy in the context of the energy transition. As a remedy, we present here a biophysical stock-flow consistent macroeconomic model calibrated at the global scale, that combines detailed bottom-up estimates for the high capital intensity of renewable energies and the decreasing energy return on investment (EROI) of fossil fuels. We find that the completion of a global energy transition scenario compatible with the 1.5 °C objective of the Paris Agreement leads to a decrease of the system’s EROI and to high investment share, employment and inflation trends, characteristic of a “war economy”. Our results further indicate that a slower growth rate eases the transition, and call for further work on post-growth scenarios studies.

Beyond Job Guarantee: The Employer of Last Resort Program as a Tool to Promote the Energy Transition

ABSTRACT We argue that a careful design of a program of direct employment and public provision by the state can have permanent effects and promote the structural and environmental transformation of the economy. Starting from this point, we develop a multisectoral stock-flow consistent model to study the long-run effects of the implementation of a job guarantee program, both in the original formulation of Minsky and in its recent version put forward as part of the ‘Green New Deal’ (GND) policy package. We also assess the impact of both ‘green’ and ‘brown’ standard fiscal expenditures, as well as a policy mix including industrial, environmental and employment measures. Results from our simulations point out that, in order to pursue the twin targets of full employment and environmental sustainability, the government should invest in gross fixed capital formation while both reducing energy consumption and acting as an employer of last resort in order to absorb the workforce expelled from the energy sector.

ITFIN: A stock-flow consistent model for the Italian economy

ITFIN: A stock-flow consistent model for the Italian economy

Expectations and the Stability of Stock-Flow Consistent Models

Expectations and the Stability of Stock-Flow Consistent Models

ITFIN: A Stock-Flow Consistent Model for the Italian Economy

ITFIN: A Stock-Flow Consistent Model for the Italian Economy

Selecting the Government Financial Rule for Reducing the Negative Effects of the Oil Sanctions on the Selected Macroeconomic Variables in Iran: Adopting the Stock-Flow Consistent Model

Selecting the Government Financial Rule for Reducing the Negative Effects of the Oil Sanctions on the Selected Macroeconomic Variables in Iran: Adopting the Stock-Flow Consistent Model

Co-evolution of network structure and consumer inequality in a spatially explicit model of energetic resource acquisition

Energetic resources in ecological and social–ecological systems are distributed through complex networks, which co-evolve with the system and consumers to move resources from points of origin to those of end use. Past research has focused on effects of spatiotemporal resource heterogeneity in ecosystems and society, or socioeconomic drivers of inequality, with less attention to interactions between resource network structure and population-level outcomes. Here, we develop a spatially explicit, stock-flow consistent agent-based model of generic consumers building and crossing links between resources, and we explore the co-evolution of the emergent network structure and inequality in consumers’ resource reserves across three distinct landscapes. We show that the consumer inequality initially decreased during network expansion, then increased rapidly as the network reached a more stable state. The spatial distribution of resources in each of the three landscapes constrained the structures that could emerge, and therefore the specific rates and timings of these dynamics. This work demonstrates the use of energetically consistent modelling to understand possible relationships among a spatially distributed set of resources, the network structure that connects them to a population, and inequality in that population. This can provide a theoretical underpinning informing further work to better understand causes of resource inequality and heterogeneity in observed systems.

Endogenous exchange rates in empirical stock-flow consistent models for peripheral economies: an illustration from the case of Argentina

In recent years there has been an increase in empirical SFC models applied to specific countries to address a broad range of research questions. However, in most cases, the exchange rate has been modeled as exogenous. This prevents the analysis of both the multiplicity of channels through which the global financial cycle impacts economies and the effects that the different tools of domestic economic policy have on the external sector and macro-financial stability. To overcome this limitation, this paper presents an empirical quarterly SFC model for Argentina where the exchange rate is modeled among the lines proposed by Godley and Lavoie. The model includes a diversity of tools of economic policy that in the recent past have affected exchange rate stability and, consequently, the economy in general. The results suggest that the closure used in this model can be useful for the construction of similar models for other peripheral countries in which the nominal exchange rate results from the interaction of different processes from both the domestic economy and the rest of the world.

The reflux phase in monetary circuit theory and stock–flow consistent models

Stock–flow consistent (SFC) modelling and monetary circuit theory (MCT) have many similarities. However, an important difference concerns the reflux phase, during which the credits issued by banks are repaid. This phase is constitutive of MCT models, but does not generally appear explicitly in SFC models. The authors propose here to develop an SFC model in which the bank loans issued at the beginning of a period are explicitly repaid at the end of it. The repayment of long-term bank loans financing investments will then represent a leakage outside the monetary circuit and affect the level of aggregate demand and the dynamics of the model. The authors show that considering these repayments could have a lasting effect on corporate profits, corporate indebtedness, and growth of production. This result suggests that it could be interesting to focus more on the reflux phase within SFC models, taking inspiration from MCT.

Carbon tax in a stock-flow consistent model: The role of commercial banks in financing low-carbon transition

With the purpose of performing a simple and original analysis on the impact of carbon tax on low-carbon transition, this paper presents a stock-flow consistent model, paying special attention to the role of commercial banks. Through theoretical analysis, we find that the reduction effect of carbon tax on carbon emissions is amplified by commercial banks via financing more green investments. Moreover, such effect is altered by commercial banks’ capability to issue green loans. The results obtained in this paper facilitate the understandings about carbon tax and its coordination with bank-centered financial policies.

It is not la vie en rose: new insights from Graziani’s theory of the monetary circuit

The aim of this paper is twofold. First, it shows how a standard stock–flow consistent model (SFCM) can be modified to embed some fundamental insights from Graziani’s theory of the monetary circuit (TMC). Second, it aims to address some common misconceptions about the TMC. More precisely, it is argued that: (a) a market-clearing price mechanism does not necessarily imply a neoclassical-like closure of the model; (b) the ways in which SFCMs and the TMC define bank loans are mutually consistent, although they are based on different accounting periods; (c) consumer credit is final finance, not initial finance; (d) the paradox of profit is not a logical conundrum, but an abstract counter-factual that allows the shedding of light on a neglected role of government spending; and (e) overall, the TMC can be regarded as a ‘Marxian’ rendition of Keynes’s method of aggregates.

An agent-based model for Secular Stagnation in the USA: theory and empirical evidence

This paper deals with the Secular Stagnation in productivity growth that marks the US economy since the end of the Golden Age. I contribute to the understanding of this phenomenon proposing a theoretical and empirical analysis. On the theoretical side, I develop an agent-based, stock-flow consistent model to investigate the deep relationship between functional income distribution and productivity through the channel of innovation. Findings suggest that the continuous shift of income from wages to profits may have resulted in a smaller incentive to invest on R&D, with the corresponding decline in productivity growth that characterizes US Secular Stagnation. In this respect, a social compromise between workers and capitalists in terms of higher wages helps foster innovation and economic growth, but it does not necessarily entail significant improvements in terms of income concentration, because of higher unemployment rates. Additionally, I question the neoclassical belief on the negative interest-elasticity of investments, since decreases in the rate of interest are not associated with increases in capital accumulation, but they decrease income inequality through higher employment rates. On the empirical side, this paper presents a panel cointegration analysis on US manufacturing industries for the period 1958–2011. If, on the one hand, the linkage between R&D and wages is corroborated, on the other hand, I find the lack of any long-run relationship between innovative search and the rate of interest, which does not necessarily conflict with theoretical predictions.

Assessing pension system outcomes in Brazil

The pension system serves as an important instrument to provide income for individuals who are incapacitated for work or achieve old age. Recently, Pension Systems worldwide have faced financial and actuarial difficulties, casting doubts about their sustainability. Arguably, the main reasons for the systemic unbalance are the ageing population and the structure of benefits. The present article investigates the impacts of these two variables by means of simulation exercises. Specifically, this paper aims to analyze how a rise in formality and an increase in labor productivity affect the results for the Brazilian Pension System (deficit or surplus), the participation of the benefits in total GDP and economic growth, based on a stock-flow consistent model (SFC). The results reveal that increasing formalization (i.e, rising the number of taxpayers) reduces the pension system deficit and boost economic growth. But the system deficit persists somewhat. Allowing for productivity growth improves the results.

The evolution of debtor-creditor relationships within a monetary union: Trade imbalances, excess reserves and economic policy

This paper analyzes the emergence of internal debtor-creditor relationships within a monetary union. We develop a stock-flow consistent model consisting of three regions – North, South, and the Rest of the World (RoW) –, where North and South form a monetary union. We show how the simultaneous presence of investment booms, declining export performance and mercantilist policies within a monetary union can interact in order to create Minsky-type boom-bust cycles. Fiscal policy and a Eurozone lender of last resort can help sustain economic life under existing structural imbalances, but without eliminating the root causes of boom-bust patterns.

Varieties and interdependencies of demand and growth regimes in finance-dominated capitalism: a Post-Keynesian two-country stock–flow consistent simulation approach

The authors outline and simulate a stylized Post-Keynesian two-country stock–flow consistent model to demonstrate the interconnection of three of the main features/outcomes of finance-dominated capitalism, namely worsening income distribution for the bottom 90 per cent of households, the rise of international imbalances, and the build-up of financial fragility. In the model, two basic regimes emerge, depending on the institutional setting of the respective model economy: the debt-led private demand boom regime and the export-led mercantilist regime. The authors demonstrate the complementarity and interdependence of these two regimes and show how this constellation transformed after a crisis into the domestic demand-led regime stabilized by government deficits, on the one hand, and export-led mercantilist regimes, on the other, depending on the required deleveraging of private household debt, distributional developments and fiscal policy.

Forecasting in a complex environment: Machine learning sales expectations in a stock flow consistent agent-based simulation model

The aim of this paper is to investigate how different degrees of sophistication in agents’ behavioral rules may affect individual and macroeconomic performances. In particular, we analyze the effects of introducing into an agent-based macro model firms that are able to formulate effective sales forecasts by using simple machine learning algorithms. These techniques are able to provide predictions that are unbiased and present a certain degree of accuracy, especially in the case of a genetic algorithm. We observe that machine learning allows firms to increase profits, though this result in a declining wage share and a smaller long-run growth rate. Moreover, the predictive methods are able to formulate expectations that remain unbiased when shocks are not massive, thus providing firms with forecasting capabilities that to a certain extent may be consistent with the Lucas Critique.

Balance Sheet Effects in a Financialized Environment: A Stock-Flow Consistent Framework for Mexico

ABSTRACT Exchange rate volatility, growing foreign corporate debt, and decreasing private investment ratio are among the consequences of financialization experienced by developing countries such as Mexico. The present work analyses the combined effect of these three factors using a Stock Flow Consistent (SFC) model. It analytically explores the balance sheet effect in the non-financial corporate sector; higher foreign debt would affect private investment after episodes of real currency depreciation. To explore such mechanisms, we simulate the commodity price cycle of the early 2000s alongside the shifts in the stance of the FED in the aftermath of the Global Financial Crisis. The scenario analysis points to a hysteresis of the Real Exchange Rate (RER) and an increase in foreign debt level.

Assessing the Economic Consequences of an Energy Transition Through a Biophysical Stock-Flow Consistent Model

Assessing the Economic Consequences of an Energy Transition Through a Biophysical Stock-Flow Consistent Model