Post-Keynesian stock-flow-consistent modelling: a survey

Abstract

The aim of the paper is to provide an overview of the current stock-flow-consistent (SFC) literature. Indeed, we feel the SFC approach has recently led to a blossoming literature, requiring a new summary after the work of Dos Santos and above all after the publication of the main reference work on the methodology, Godley and Lavoie's Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth. The paper is developed along the following lines. First, a brief historical analysis investigates the roots of this class of models that can be traced as far back as 1949 and the work of Copeland. Second, the competing points of view regarding some of its main controversial aspects are underlined and used to classify the different methodological approaches followed in using these models. Namely, we discuss (i) how the models are solved, (ii) the treatment of time and its implication and (ii) the need (or not) for microfoundations. These results are then used in the third section of the paper to develop a bifocal perspective, which allows us to divide the literature reviewed according to both its subject and the methodology. We explore various topics such as financialisation, exchange rate modelling, policy implication, the need for a common framework within the post-Keynesian literature and the empirical use of SFC models. Finally, the conclusions present some hypotheses (and wishes) for the possible lines of development of SFC models.

An Agent-based Stock-flow Consistent Model of the Sustainable Transition in the Energy Sector

“…A complete and compact description of all Eurace agents and sectors is provided in the Appendix by Tables 2, 3, 4 and 5, where we have highlighted the 'stock-flow consistency of the model, according to the methodology described by (Godley and Lavoie, 2012) and along the lines of post-Keynesian economics, see (Caverzasi and Godin, 2015). The tables highlight a set of relevant identities that need to be taken into account to check for the consistency between stocks and flows in the simulated data.…”

“…This appendix provides a compact model description that emphasizes the adopted stock-flow-consistent modelling approach along the lines introduced by Godley and Lavoie (2012) and common also within postKeynesian economics, see also Caverzasi and Godin (2015). The following tables outline the stocks (balance sheet entries) and flows (income statement entries) characterizing Eurace agents.…”

Inside Money in a Kaldor-Kalecki-Steindl Fiscal Policy Model: The Unit of Account, Inflation, Leverage, and Financial Fragility

“…The stock-flow macroeconomics popularized by Godley and Lavoie (2012) and recently surveyed by Caverzasi and Godin (2015) have elucidated the implications of policies continued over the medium and long terms within the framework of Post-Keynesian theory. Specifically, flows of income and expenditure for each sector imply changes in financial positions.…”

“…The discussion in Caverzasi and Godin (2015) distinguishes between analytical and numerical solutions of SFC models and among discursive and simulation resolutions of theoretical SFC models. This paper is less analytical than Hannsgen (2014) in that the earlier article examined the dynamic properties of the model for all cases in which the assumptions of wage-led AD and Keynesian instability in output adjustment held.…”

Further Insights on Endogenous Money and the Liquidity Preference Theory of Interest

“…In so doing, he makes his own proposal about how the money and credit markets should be formalised so as to integrate both the endogenous money view and Keynes's liquidity preference theory of the rate of interest. Surprisingly, there is no reference in his article to the work which has been done over the last 20 years within the stock-flow consistent (SFC) approach (see Godley and Lavoie, 2007;Caverzasi and Godin, 2015;Nikiforos and Zezza, 2017). One would have thought that this kind of work would have been highly relevant to Asensio's effort to integrate analyses of deposits, loans and bonds, their rates of return, as well as possibly aggregate output.…”