Ramanan — Francis Cripps And Marc Lavoie’s Biography Of Wynne Godley

There’s a new book, The Palgrave Companion To Cambridge Economics which features among other things biographies of Wynne Godley, Joan Robinson and Nicholas Kaldor and other notable Cambridge economists. Wynne Godley’s biography—Wynne Godley (1926-2010)—is by his closest collaborators – Francis Cripps and Marc Lavoie (pp. 929-953)….

The Case for Concerted Action
Francis Cripps And Marc Lavoie’s Biography Of Wynne Godley
V. Ramanan

Brian Romanchuk — The Determination Financial Asset Holdings In SFC Models

This article discusses how I systematically generate the systems of equations that determines financial asset holdings within the Python sfc_models framework for Stock-Flow Consistent (SFC) models. It should be noted that despite the generality of the title, I am only discussing how I attacked the problem (the results of my technique is consistent with the literature that I have studied). The existing literature relies on the derivation of system equations by hand, and so the modelling techniques used by others are less constrained than the algorithmic equation generation I use.

(This article is technical, and aimed at those with an interest in SFC models, or more generally, an interest in how to set up a mathematical macro model. It will presumably make its way into an upcoming book on SFC modelling in Python.)

Bond Economics
The Determination Financial Asset Holdings In SFC Models
Brian Romanchuk

Stock-flow consistent (SFC) model for beginners [***Free Tool***]

A while ago I created the SIM(mple) model as a graphical tool on InsightMaker, which is a really great software that runs on the web for free and allows users to play around with the models and also copy them. Today I received an email informing me that the model has had 100 views – wow! It is originally from the book by Godley and Lavoie (not anymore) available here. The good thing about Insightmaker is that you can try out the model with different parameter choices and hence experience it without having to use some mathematical software. I hope that more people will get to know this really easy way of understanding the mechanisms behind the very simple SFC model.

econoblog 101
Stock-flow consistent (SFC) model for beginners

Dirk Ehnts | Lecturer at Bard College Berlin

Jason Smith — Stock flow accounting with calculus

…We're back to the case where the initial stock was zero. Essentially a change in stock over a time scale (tt) is equivalent to a flow, and everything I said about scales and metrics and free parameters in this post follows.

I do not understand the resistance to the idea that calculus can handle accounting. There are no definitions of stocks, flows, time intervals or accounting rules that are logically consistent that cannot be represented where a stock is an integral of a flow over a time scale. Attempts to do so just introduce logical inconsistencies (like stocks being equal to flows above).

See Wikipedia/Stock and Flow/Calculus Interpretation:
If the quantity of some stock variable at time ${\displaystyle t}$ is ${\displaystyle Qt}$, then the derivative ${\displaystyle \frac{dQt}{dt}}$ is the flow of changes in the stock. Likewise, the stock at some time t is the integral of the flow from some time when the time was zero until time t.

Information Transfer Economics
Stock flow accounting with calculus
Jason Smith

Jason Smith — What does it mean when we say money flows?

Even though the accounting is exact in the model above, I could make the wave travel faster or slower (and therefore the decay happen faster or slower) by changing the size of the debits and credits or changing the number of transactions per time step. The velocity of the wave is a free parameter not established by pure accounting. In the linked post, I called that free parameter Γ and was promptly attacked by the stock-flow consistent community for heresy.…

Information Transfer Economics
What does it mean when we say money flows?
Jason Smith

Brian Romanchuk — Money Hoarding Versus Saving, And Economic Growth

Brian digs into the implications of the saving versus hoarding distinction.

Bond Economics
Money Hoarding Versus Saving, And Economic Growth
Brian Romanchuk

Bill Mitchell— Flow-of-funds and sectoral balances

I have noted some misperceptions about the derivation, meaning and application of the so-called sectoral balances framework that is used in Modern Monetary Theory (MMT) to help explicate the relationship between the government and the non-government sectors. Some of this confusion appears to be the product of a deeper misunderstanding of the difference between stocks and flows and relationships between flows in economics. Those who conclude that this framework is really just an accounting structure are incorrect. Equally, those who conclude that the accounting relationships that are part of the sectoral balances framework are matters of interpretation are also incorrect. It should be clear that the sectoral balances framework combines accounting structures, which are derived from the national accounts framework used by statisticians to measure economic activity, and theoretical propositions, which seek to explain relationships between variables within the accounting structures. In other words, we need to understand both the accounting aspects that are true by definition as well as the underlying theoretical structures which drive the balances.…

Must-read relative to understanding MMT.

Bill Mitchell – billy blog
Flow-of-funds and sectoral balances
Bill Mitchell | Professor in Ecoof the Centre of Full Employment and Equnomics and Director ity (CofFEE), at University of Newcastle, NSW, Australia

Merijn Knibbe — Outside the neoclassical realm, ‘endogenous money’ is not heterodox. A response to the ideas of Krugman

The idea of endogenous money is consistent with manuals on monetary statistics which, using the ‘quadruple accounting method’ (your debt is my asset) explain how money is measured. Here, an ECB example. The monthly press release of the ECB is in fact consistent with ‘endogenous money’ idea. ‘Quadruple accounting’ is supposed to be ‘Post Keynesian’. Help. It is just basic, plain accounting, this most basic, method of keeping track of debts. It’s not the problem of the heterodox that neoclassicals did not master this. The idea that ‘credit’ is in fact a very complicated and tangled net between ‘agents’ which does not only define the relation between these agents but also affects their ‘reputation’ and therewith the agents themselves may be somewhat disturbing to the world of freely floating neoclassical atomicons – but again, that’s not the problem of the so called ‘heterodox’.

 Real-World Economics Review Blog
Outside the neoclassical realm, ‘endogenous money’ is not heterodox. A response to the ideas of Krugman
Merijn Knibbe

Unlearning Economics — How Not to Do Macroeconomics

This is why I’d prefer something like Stock-Flow Consistent models [click to download G & L], which focus on accounting relations and flows of funds, to be the norm in macroeconomics. As economists know all too well, all models abstract from some things, and when we are talking about big, systemic problems, it’s not particularly important whether Maria’s level of consumption is satisfying a utility function. What’s important is how money and resources move around: where they come from, and how they are split – on aggregate – between investment, consumption, financial speculation and so forth.

This type of methodology can help understand how the financial sector might create bubbles; or why deficits grow and shrink; or how government expenditure impacts investment. What’s more, it will help us understand all of these aspects of the economy at the same time.

 We will not have an overwhelming number of models, each highlighting one particular mechanic, with no ex ante way of selecting between them, but one or a small number of generalisable models which can account for a large number of important phenomena.

Unlearning Economics
How Not to Do Macroeconomics

CDNDC — Assumptions

“I have found out what economics is; it is the science of confusing stocks with flows”— Michael Kalecki, quoted by Joan Robinson in Shedding Darkness

Stock-Flow Consistent Economics — A Post-Keynesian Economic Blog
Assumptions
CDNDC

Noah Smith — Thinking out loud: Do government deficits equal private surpluses?

(Shaking head) Noah Smith is a professor of finance and he doesn't know the answer to this — although granted it is not very clearly stated as "government deficits equal private surpluses," as Jan Hatzius does, whom Noah quotes.

It is clearer to say that the government fiscal deficit equals the consolidated nongovernment fiscal surplus in aggregate, since the government balance plus the consolidated domestic private sector balance plus the external balance must sum to zero as an accounting identity. Transposing, the government balance will be the inverse of the consolidated nongovernment balance in aggregate.

If the external balance is zero, then the government balance and the domestic private sector balance must sum to zero, therefore, must be in inverse relationship. In this case, if government net spends by running a deficit, then the domestic private sector saves the same amount in aggregate wrt net financial assets. And vice versa.

If the both the external sector and the government sector are in balance, then the domestic private sector must also as an identity. There can be net savers but not net savers in aggregate, since accounts within the sector must balance, i.e., net to zero.

Hint to Noah: Read Godley and Lavoie, Monetary Economics for an explication of stock-flow consistency in sectoral balance accounting. Jan Haztius learned this from Wynne Godley, and it is the basis of MMT SFC macro modeling. This is really simple when you do the accounting properly.

While accounting identities don't say anything about the causality, they do reveal what is necessary and what is impossible in terms of stock flow consistency. Mixing up stocks and flows is a novice error.

Noahpinion
Thinking out loud: Do government deficits equal private surpluses?

Noah Smith | Assistant Professor of Finance, Stony Brook University