1300 187 187
This book challenges the mainstream paradigm, which is based on the inter-temporal optimisation of welfare by individual agents. It introduces a new methodology for studying how it is institutions which create flows of income, expenditure and production together with stocks of assets (including money) and liabilities, thereby determining how whole economies evolve through time. Starting with extremely simple stock flow consistent (SFC) models, the text describes a succession of increasingly complex models. Solutions of these models are used to illustrate ways in which whole economies evolve when shocked in various ways. Readers will be able to download all the models and explore their properties for themselves. A major conclusion is that economies require management via fiscal and monetary policy if full employment without inflation is to be achieved.
| Notations Used in the Book | p. ix |
| List of Tables | p. xviii |
| List of Figures | p. xx |
| Preface | p. xxxiv |
| Introduction | p. 1 |
| Two paradigms | p. 1 |
| Aspiration | p. 4 |
| Endeavour | p. 9 |
| Provenance | p. 11 |
| Some links with the 'old' Yale school | p. 13 |
| Links with the post-Keynesian school | p. 16 |
| A sketch of the book | p. 18 |
| Compelling empirical failings of the neo-classical production function | p. 20 |
| Stock-flow relations and the post-Keynesians | p. 21 |
| Balance Sheets, Transaction Matrices and the Monetary Circuit | p. 23 |
| Coherent stock-flow accounting | p. 23 |
| Balance sheets or stock matrices | p. 25 |
| The conventional income and expenditure matrix | p. 33 |
| The transactions flow matrix | p. 37 |
| Full integration of the balance sheet and the transactions flow matrices | p. 43 |
| Applications of the transactions flow matrix: the monetary circuit | p. 47 |
| The Simplest Model with Government Money | p. 57 |
| Government money versus private money | p. 57 |
| The service economy with government money and no portfolio choice | p. 58 |
| Formalizing Model SIM | p. 61 |
| A numerical example and the standard Keynesian multiplier | p. 68 |
| Steady-state solutions | p. 71 |
| The consumption function as a stock-flow norm | p. 74 |
| Expectations mistakes in a simple stock-flow model | p. 78 |
| Out of the steady state | p. 83 |
| A graphical illustration of Model SIM | p. 88 |
| Preliminary conclusion | p. 91 |
| Equation list of Model SIM | p. 91 |
| Equation list of Model SIM with expectations (SIMEX) | p. 92 |
| The mean lag theorem | p. 92 |
| Government deficits in a growing economy | p. 95 |
| Government Money with Portfolio Choice | p. 99 |
| Introduction | p. 99 |
| The matrices of Model PC | p. 99 |
| The equations of Model PC | p. 102 |
| Expectations in Model PC | p. 107 |
| The steady-state solutions of the model | p. 111 |
| Implications of changes in parameter values on temporary and steady-state income | p. 116 |
| A government target for the debt to income ratio | p. 124 |
| Equation list of Model PC | p. 126 |
| Equation list of Model PC with expectations (PCEX) | p. 126 |
| Endogenous money | p. 127 |
| Alternative mainstream closures | p. 129 |
| Long-term Bonds, Capital Gains and Liquidity Preference | p. 131 |
| New features of Model LP | p. 131 |
| The value of a perpetuity | p. 131 |
| The expected rate of return on long-term bonds | p. 132 |
| Assessing capital gains algebraically and geometrically | p. 134 |
| Matrices with long-term bonds | p. 136 |
| Equations of Model LP | p. 137 |
| The short-run and long-run impact of higher interest rates on real demand | p. 150 |
| The effect of household liquidity preference on long rates | p. 153 |
| Making government expenditures endogenous | p. 160 |
| Equations of Model LP | p. 165 |
| The liquidity trap | p. 167 |
| An alternative, more orthodox, depiction of the bond market | p. 168 |
| Introducing the Open Economy | p. 170 |
| A coherent framework | p. 170 |
| The matrices of a two-region economy | p. 171 |
| The equations of a two-region economy | p. 173 |
| The steady-state solutions of Model REG | p. 176 |
| Experiments with Model REG | p. 180 |
| The matrices of a two-country economy | p. 187 |
| The equations of a two-country economy | p. 191 |
| Rejecting the Mundell-Fleming approach and adopting the compensation approach | p. 194 |
| Adjustment mechanisms | p. 201 |
| Concluding thoughts | p. 207 |
| Equations of Model REG | p. 209 |
| Equations of Model OPEN | p. 211 |
| Historical and empirical evidence concerning the compensation principle | p. 213 |
| Other institutional frameworks: the currency board | p. 214 |
| How to easily build an open model | p. 215 |
| A Simple Model with Private Bank Money | p. 217 |
| Private money and bank loans | p. 217 |
| The matrices of the simplest model with private money | p. 218 |
| The equations of Model BMW | p. 222 |
| The steady state | p. 227 |
| Out-of-equilibrium values and stability analysis | p. 233 |
| The role of the rate of interest | p. 240 |
| A look forward | p. 247 |
| The equations of Model BMW | p. 247 |
| Time, Inventories, Profits and Pricing | p. 250 |
| The role of time | p. 250 |
| The measure of profits | p. 252 |
| Pricing | p. 263 |
| Numerical examples of fluctuating inventories | p. 276 |
| A Numerical example of inventory accounting | p. 278 |
| A Model with Private Bank Money, Inventories and Inflation | p. 284 |
| Introduction | p. 284 |
| The equations of Model DIS | p. 285 |
| Additional properties of the model | p. 293 |
| Steady-state values of Model DIS | p. 295 |
| Dealing with inflation in (a slightly modified) Model DIS | p. 300 |
| Equation list of Model DIS | p. 308 |
| The peculiar role of given expectations | p. 310 |
| Equation list of Model DISINF | p. 312 |
| A Model with both Inside and Outside Money | p. 314 |
| A model with active commercial banks | p. 314 |
| Balance sheet and transaction matrices | p. 315 |
| Producing firms | p. 318 |
| Households | p. 322 |
| The government sector and the central bank | p. 331 |
| The commercial banking system | p. 333 |
| Making it all sing with simulations | p. 342 |
| Conclusion | p. 374 |
| Overdraft banking systems | p. 374 |
| Arithmetical example of a change in portfolio preference | p. 376 |
| A Growth Model Prototype | p. 378 |
| Prolegomena | p. 378 |
| Balance sheet, revaluation and transactions-flow matrices | p. 379 |
| Decisions taken by firms | p. 383 |
| Decisions taken by households | p. 392 |
| The public sector | p. 397 |
| The banking sector | p. 399 |
| Fiscal and monetary policies | p. 404 |
| Households in the model as a whole | p. 422 |
| Financial decisions in the model as a whole | p. 435 |
| A concluding recap | p. 441 |
| A More Advanced Open Economy Model | p. 445 |
| Introduction | p. 445 |
| The two matrices | p. 446 |
| Equations of the generic model | p. 450 |
| Alternative closures | p. 462 |
| Experiments with the main fixed exchange rate closure | p. 466 |
| Experiments with alternative fixed exchange rate closures | p. 472 |
| Experiments with the flexible exchange rate closure | p. 478 |
| Lessons to be drawn | p. 487 |
| A fundamental and useful open-economy flow-of-funds identity | p. 490 |
| An alternative flexible exchange rate closure | p. 492 |
| General Conclusion | p. 493 |
| Unique features of the models presented here | p. 493 |
| A summary | p. 499 |
| References | p. 501 |
| Index | p. 514 |
| Table of Contents provided by Ingram. All Rights Reserved. |
ISBN: 9780230500556
ISBN-10: 0230500552
Audience:
Professional
Format:
Hardcover
Language:
English
Number Of Pages: 576
Published: 1st February 2007
Publisher: Palgrave Macmillan
Dimensions (cm): 22.2 x 14.2
x 3.2
Weight (kg): 0.546
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