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Monetary Economics : An Integrated Approach to Credit, Money, Income, Production and Wealth - Wynne A. H. Godley

Monetary Economics

An Integrated Approach to Credit, Money, Income, Production and Wealth

Hardcover

Published: 1st December 2006
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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.

'The framework that Godley and Lavoie develop, with a consistent numerical and simulational handle on the various models, is a return to a majestic Wicksellian tradition A whole generation of graduate students have been brought up on policy nihilism, bordering on paralysis in the face of policy dilemmas. A new generation, armed with the tools, concepts and models developed by Godley and Lavoie, can now return to the grand traditions of macroeconomics as an experimental science, focusing on policy.' K. Vela Velupillai, Fellow, Girton College, Cambridge, UK, and Professor of Economics, University of Trento, Italy

'Wynne Godley has been the moving force behind keeping quantitative non-mainstream macroeconomics alive and flourishing for the last several decades...His work is inspiring, and will guide policy-oriented macroeconomic modellers for decades to come.' Lance Taylor, Cambridge Journal of Economics

'...[This] clearly deserves to become a standard reference for everybody interested in SFC modelling in particular and modern macroeconomics in general. There are already first signs that other economists are indeed inspired by this way of thinking about the economy...' - Till van Treeck, Intervention, European Journal of Economics and Economic Policies

Notations Used in the Bookp. ix
List of Tablesp. xviii
List of Figuresp. xx
Prefacep. xxxiv
Introductionp. 1
Two paradigmsp. 1
Aspirationp. 4
Endeavourp. 9
Provenancep. 11
Some links with the 'old' Yale schoolp. 13
Links with the post-Keynesian schoolp. 16
A sketch of the bookp. 18
Compelling empirical failings of the neo-classical production functionp. 20
Stock-flow relations and the post-Keynesiansp. 21
Balance Sheets, Transaction Matrices and the Monetary Circuitp. 23
Coherent stock-flow accountingp. 23
Balance sheets or stock matricesp. 25
The conventional income and expenditure matrixp. 33
The transactions flow matrixp. 37
Full integration of the balance sheet and the transactions flow matricesp. 43
Applications of the transactions flow matrix: the monetary circuitp. 47
The Simplest Model with Government Moneyp. 57
Government money versus private moneyp. 57
The service economy with government money and no portfolio choicep. 58
Formalizing Model SIMp. 61
A numerical example and the standard Keynesian multiplierp. 68
Steady-state solutionsp. 71
The consumption function as a stock-flow normp. 74
Expectations mistakes in a simple stock-flow modelp. 78
Out of the steady statep. 83
A graphical illustration of Model SIMp. 88
Preliminary conclusionp. 91
Equation list of Model SIMp. 91
Equation list of Model SIM with expectations (SIMEX)p. 92
The mean lag theoremp. 92
Government deficits in a growing economyp. 95
Government Money with Portfolio Choicep. 99
Introductionp. 99
The matrices of Model PCp. 99
The equations of Model PCp. 102
Expectations in Model PCp. 107
The steady-state solutions of the modelp. 111
Implications of changes in parameter values on temporary and steady-state incomep. 116
A government target for the debt to income ratiop. 124
Equation list of Model PCp. 126
Equation list of Model PC with expectations (PCEX)p. 126
Endogenous moneyp. 127
Alternative mainstream closuresp. 129
Long-term Bonds, Capital Gains and Liquidity Preferencep. 131
New features of Model LPp. 131
The value of a perpetuityp. 131
The expected rate of return on long-term bondsp. 132
Assessing capital gains algebraically and geometricallyp. 134
Matrices with long-term bondsp. 136
Equations of Model LPp. 137
The short-run and long-run impact of higher interest rates on real demandp. 150
The effect of household liquidity preference on long ratesp. 153
Making government expenditures endogenousp. 160
Equations of Model LPp. 165
The liquidity trapp. 167
An alternative, more orthodox, depiction of the bond marketp. 168
Introducing the Open Economyp. 170
A coherent frameworkp. 170
The matrices of a two-region economyp. 171
The equations of a two-region economyp. 173
The steady-state solutions of Model REGp. 176
Experiments with Model REGp. 180
The matrices of a two-country economyp. 187
The equations of a two-country economyp. 191
Rejecting the Mundell-Fleming approach and adopting the compensation approachp. 194
Adjustment mechanismsp. 201
Concluding thoughtsp. 207
Equations of Model REGp. 209
Equations of Model OPENp. 211
Historical and empirical evidence concerning the compensation principlep. 213
Other institutional frameworks: the currency boardp. 214
How to easily build an open modelp. 215
A Simple Model with Private Bank Moneyp. 217
Private money and bank loansp. 217
The matrices of the simplest model with private moneyp. 218
The equations of Model BMWp. 222
The steady statep. 227
Out-of-equilibrium values and stability analysisp. 233
The role of the rate of interestp. 240
A look forwardp. 247
The equations of Model BMWp. 247
Time, Inventories, Profits and Pricingp. 250
The role of timep. 250
The measure of profitsp. 252
Pricingp. 263
Numerical examples of fluctuating inventoriesp. 276
A Numerical example of inventory accountingp. 278
A Model with Private Bank Money, Inventories and Inflationp. 284
Introductionp. 284
The equations of Model DISp. 285
Additional properties of the modelp. 293
Steady-state values of Model DISp. 295
Dealing with inflation in (a slightly modified) Model DISp. 300
Equation list of Model DISp. 308
The peculiar role of given expectationsp. 310
Equation list of Model DISINFp. 312
A Model with both Inside and Outside Moneyp. 314
A model with active commercial banksp. 314
Balance sheet and transaction matricesp. 315
Producing firmsp. 318
Householdsp. 322
The government sector and the central bankp. 331
The commercial banking systemp. 333
Making it all sing with simulationsp. 342
Conclusionp. 374
Overdraft banking systemsp. 374
Arithmetical example of a change in portfolio preferencep. 376
A Growth Model Prototypep. 378
Prolegomenap. 378
Balance sheet, revaluation and transactions-flow matricesp. 379
Decisions taken by firmsp. 383
Decisions taken by householdsp. 392
The public sectorp. 397
The banking sectorp. 399
Fiscal and monetary policiesp. 404
Households in the model as a wholep. 422
Financial decisions in the model as a wholep. 435
A concluding recapp. 441
A More Advanced Open Economy Modelp. 445
Introductionp. 445
The two matricesp. 446
Equations of the generic modelp. 450
Alternative closuresp. 462
Experiments with the main fixed exchange rate closurep. 466
Experiments with alternative fixed exchange rate closuresp. 472
Experiments with the flexible exchange rate closurep. 478
Lessons to be drawnp. 487
A fundamental and useful open-economy flow-of-funds identityp. 490
An alternative flexible exchange rate closurep. 492
General Conclusionp. 493
Unique features of the models presented herep. 493
A summaryp. 499
Referencesp. 501
Indexp. 514
Table of Contents provided by Ingram. All Rights Reserved.

ISBN: 9780230500556
ISBN-10: 0230500552
Audience: Professional
Format: Hardcover
Language: English
Number Of Pages: 530
Published: 1st December 2006
Publisher: Palgrave Macmillan
Country of Publication: GB
Dimensions (cm): 21.6 x 14.0  x 3.4
Weight (kg): 0.85
Edition Number: 1