The Cambridge Trust of New Thinking in Economics

Frontiers of heterodox macroeconomics

Thursday 28 March 2019
Downing College, Cambridge, UK –
all sessions in the Grace Howard Room

Introduction: In the past few decades and intensified since the global financial crises of August 2007, heterodox macroeconomics has developed apace and its scope has broadened in a number of directions. The purpose of the Trust’s next conference is to review the ‘state of the art’ in heterodox macroeconomics, its strengths and weaknesses and future directions. Heterodox macroeconomics has broadened its scope through gender macroeconomics, ecological macroeconomics and further incorporated income distribution and inequality into macroeconomics analysis. New macroeconomic models, especially the stock-flow consistent modelling have become widely used modes of analysis. Money and finance, monetary policy and fiscal policy as well as other policies have been discussed widely. The focus of this conference will be on all these issues and other as necessary. [keep reading on the website]

PAPER 6

Author: Emilio Carnevali, Matteo Deleidi, Riccardo Pariboni and Marco Veronese Passarella

Professional affiliation: University of Leeds, UK, Università Roma Tre, Italy, Università Roma Tre, Italy, University of Leeds, UK

Title of proposed paper: SFC Dynamic Models: Features, Limitations and Developments

The stock-flow consistent (SFC) approach to macroeconomic dynamic modelling was developed in the 2000s by Godley and Lavoie, who paved the way for the flourishing of SFC models. These models are based on four accounting principles (flow consistency, stock consistency, stock-flow consistency, and quadruple book-keeping), which allow inferring a set of accounting identities. The latter are then coupled with a set of equations defining the equilibrium conditions. Finally, difference (or differential) stochastic equations are added to define the behaviour of each macro-sector (or agent) of the economy. SFC models’ coefficients can be calibrated to obtain a theoretical baseline scenario and/or estimated through standard econometric techniques. Baseline results are then compared with a variety of ‘possible worlds’ or shocks. This theoretical and analytical flexibility is the reason SFC models are used by economists with different theoretical backgrounds. While SFC models are affected by some limitations, we believe that advantages outdo weaknesses.

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