Wednesday, June 20, 2018

sfc models — New working paper

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

by Oliver Richters and Erhard Gloetzl

Abstract: In monetary Stock-Flow Consistent (SFC) models, accountingidentities reduce the number of behavioral functions to avoid anoverdetermined system of equations. We relax this restriction using adifferential algebraic equation framework of constrained dynamics.Agents exert forces on the variables according to their desire, forinstance to gradually improve their utility. The parameter ‘economicpower’ corresponds to their ability to assert their interest. Inanalogy to Lagrangian mechanics, system constraints generate additionalconstraint forces that lead to unintended dynamics. We exemplify theprocedure using a simple SFC model and reveal its implicit assumptionsabout power relations and agents’ preferences.

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