Brian Romanchuk — The Relationship Between sfc_models And Godley And Lavoie

The text Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth, by Wynne Godley and Marc Lavoie is cited heavily within the sfc_models framework. This text is a standard text for SFC modelling, and has already been the object of extensive modelling. The fact that the models are well known is extremely useful from the point of view of development. These existing models were used to calibrate the sfc_models code.

(This article is an unedited draft of a section from my upcoming book "Introduction to SFC Models with Python.")

Bond Economics
The Relationship Between sfc_models And Godley And Lavoie
Brian Romanchuk

Philip Pilkington — Long Live Hydraulic Keynesianism: Krugman on Godley and Vernengo on Krugman

Phil captures some of the basic issues in contemporary economic debate in a short post. Well done.

It's the first time that Krugman enters the Post Keynesian debate and the Godley SFC approach as a guideline to guide empirical investigation wrt to actual context — and gets it wrong. Why he gets it wrong makes all the difference, and Phil calls him out on it. In doing so, he illumines the basic difference between the neoclassical, marginalist approach based on rationality and equilibrium and the Post Keynesian approach after Godley.

It was indeed the obsession with marginalism, rational agents and market equilibrium that drove out the far superior “hydraulic” approach to economics. Hydraulic approaches rely on stock-flow equilibrium outcomes rather than market equilibrium outcomes. As I have written before, the latter stinks of a determinism and a teleology that only exists in the minds of economists. As Krugman notes this whole belief system — for it is a belief system — is “at the core” of what economists are “supposed to know”. That Krugman says this with some degree of skepticism is refreshing indeed, because this is in my opinion the key problem with economics today that makes it less a framework for understanding the economy and more a doctrine based, ultimately, on an a priori, moral vision of man.

Yes!



Fixing the Economists

Long Live Hydraulic Keynesianism: Krugman on Godley and Vernengo on Krugman

Philip Pilkington

INET — Matheus Grasselli: How Advanced Mathematics Can Support New Economic Thinking (video)

This episode features Matheus Grasselli, Deputy Director of the Fields Institute for Research in Mathematical Sciences and Institute for New Economic Thinking grantee, discussing how the use of advanced mathematics in economics enables innovative new thinking and could help transform what's possible in the field. Below is an intrduction from Grasselli on how the role of math in economics is changing and what could be next in this exciting area of study.

INET
Matheus Grasselli: How Advanced Mathematics Can Support New Economic Thinking (video)
Interview with Marshall Auerback

The 2007-08 financial crisis was a wake-up call to mathematicians working in the area of quantitative finance, which was by then a mature subject, having grown in size and influence since the pioneering work of Black, Scholes, and Merton in the 1970s. Because the financial instruments that relied on sophisticated mathematics – collateralized debt obligations (CDOs) and other structured products – were at the very center of the crisis, many of us started to look for general models that likewise would put finance at the core of economic activity. It came as somewhat of a surprise that mainstream macroeconomic models, for example those routinely adopted by central banks around the world, had no fundamental role for banks, or financial markets for that matter, other than that of passive intermediaries.

The exceptions were the models used by heterodox economists following earlier work by, among others, Hyman Minsky and Wyne Godley. A general framework to formulate these models is what is called the stock-flow consistent approach, in which the economy as a whole is divided into sectors (households, banks, firms, governments, etc.) and every financial transaction between sectors generates a flow of funds, which in turn alters the stocks of balance sheet items (deposits, equities, etc.) Keeping track of these stock-flow relationships over time leads to systems of equations describing the evolution of the economy as a whole.

My research with the Institute for New Economic Thinking consists of analyzing the systems of equations obtained in this way using the tools of modern dynamical systems theory, including bifurcations, global estimates, and topological properties. As is often the case in judicious applications of mathematics, this kind of study can reveal phenomena that are extremely hard to identify simply by “thinking through the model.” I strongly believe that when motivated by historical experience, grounded by empirical data, and guided by institutional knowledge, mathematics can be much more than a mere language of formalization. It can act as a powerful tool for discovery.

Grasselli is collaborating with Steve Keen.

Ramanan — The Monetary Economics Of Sovereign Government Rating

Ramanan criticizes the MMT claim that imports are benefit in real terms and trade deficits don't matter as long as other countries desire to save in the importer's currency, because floating rates ensure market clearing and a currency sovereign is not constrained operationally in its own currency.

Read it at The Case of Concerted Action — Post Keynesian Ideas For A Crisis That Conventional Remedies Cannot Resolve
The Monetary Economics Of Sovereign Government Rating
by Ramanan

Ramanan has a comments section at The Case of Concerted Action, where I expect one can count on his responding to reasonable criticism. Comments welcome here, of course.