Wednesday, March 22, 2017

Brian Romanchuk — Modelling A Gold Standard


A simple account of the Bretton Woods international monetary system, out of Godley & Lavoie, and with diagrams.

Bond Economics
Modelling A Gold Standard
Brian Romanchuk

4 comments:

Matt Franko said...

"However, free-floating currencies are harder to model than a fixed currency regime"

Brian just take the CB out of it and assume the currency exchange function has been delegated to the member institutions ... but... these members have effectively FIXED capital and maintain a fixed capital to asset ratio and the traded items are financed and the loans are assets the value of which go up and down with the price of the traded items...

The frequency response of the prices of the items are so much higher than the freq response of the member institution capital account so as you can treat the capital as fixed for the purposes here...

so only the assets in the capital:asset ratio can be adjusted in order for a member institution to maintain a constant capital:assets ratio...

So if the loan values drop with the price of the imported goods then the institution financing the goods has to add reserve assets in the currency of finance in order to maintain a constant capital:assets ratio...

so they have to exchange currency balances with another institution to obtain more reserves in the currency in which they have the asset deficiency... and that other institution has the same requirement to maintain a constant capital:assets ratio...

Brian Romanchuk said...

Within my Python modelling framework, the need to calculate the price (exchange rate) the issue. Although the extension looks easy to do if you were solving the equations by hand, I am setting up the whole things with algorithms. Need to add features to the solver to determine the exchange rate if it floats; and I can't add all of these features at once.

In the real world, figuring out the exchange rate is the private sector's problem...

Neil Wilson said...

"So if the loan values drop with the price of the imported goods then the institution financing the goods"

I'm not entirely sure that view of bank collateral is valid.

Not everything is factored, and the collateral behind it tends to be rather more solid than the supplied goods. That doesn't alter the value of the loan in nominal terms.

Ignacio said...

Brian is your framework open source? Anyway anyone can contribute to it?

Just curious, I'm very proefficient Python (and other languages) programmer, and used to work with mathematical models (and writing my own) writing algorithms for them (can digest the necessary scientific literature probably).

I'm actually working on some stuff of my own unrelated to economics (related to machine learning, logic inference, neural networks etc.), but if it's open source I may be able to contribute somehow. Did't see any link in your webpage so I guess is propietary, but had to ask anyway!