The Monetary Circuit in the Age of Financialisation

Malcolm Sawyer and Marco Veronese Passarella, ‘The Monetary Circuit in the Age of Financialisation: A Stock-Flow Consistent Model with A Twofold Banking Sector’, Metroeconomica, doi: 10.1111/meca.12103, 2015
Abstract: The paper explores how the Theory of Monetary Circuit can be developed to reflect some important features of the evolution of the financial system in the past three decades, which have been associated with what may be termed ‘financialisation.’ For this purpose, we embed the benchmark single-period monetary circuit scheme proposed by Graziani in a richer set of institutional arrangements. The stock-flow consistent modelling technique pioneered by Godley and Lavoie is used to support our narrative.

Reforming the International Monetary System: a Stock-Flow Consistent Approach

Reforming the international monetary system: a stock-flow-consistent approach
Sebastian Valdecantos Halporn and Gennaro Zezza
Journal of Post Keynesian Economics, vol. 38, n.2, 2015, pp.167-191

Abstract: The emergence and persistence of large trade imbalances as well as the volatility of financial flows among countries have been attributed, at least in part, to the inadequacy of the current international monetary system after the breakdown of Bretton Woods. From a different perspective, the current eurozone crisis is also the result, in our view, of a flawed institutional setting. These problems call for reforms to mitigate or avoid the recessionary bias that is the outcome of current systems, as Keynes predicted in the discussion preceding the Bretton Woods agreements. In this paper we briefly review the evidence on international imbalances, and survey the rapidly growing literature on the subject. We introduce a set of models based on the stock-flow-consistent approach pioneered by Godley (1999) and Lavoie and Godley (2003). We discuss how to use these models to explore potential reform of the international monetary system.

The first version of this paper dates back to 2011… but it has been written to provide a benchmark model so that other researchers could expand on it, so it should not become obsolete too quickly!

Link to the model
Link to the Eviews code for the US$ model
Link to the Eviews code for the SDR model
Link to the Eviews code for the first Bancor model
Link to the Eviews code for the second Bancor model

A special issue of EJEEP on SFC modeling

The European Journal of Economics and Economic Policies: Intervention has just published a special issue dedicated to Post-Keynesian stock-flow consistent modeling.
Introduction by Antoine Godin, papers:
Huub Meijers, Joan Muysken and Olaf Sleijpen
– The deposit financing gap: another Dutch disease
Saed Khalil and Stephen Kinsella
– Bad banks choking good banks: simulating balance sheet contagion
Eugenio Caverzasi and Antoine Godin
– Financialisation and the sub-prime crisis: a stock-flow consistent model
Jacques Mazier and Sebastian Valdecantos
– A multi-speed Europe: is it viable? A stock-flow consistent approach
Biagio Ciuffo and Eckehard Rosenbaum
– Comparative numerical analysis of two stock-flow consistent post-Keynesian growth models

A new paper

Yannis Dafermos (2012) “Liquidity preference, uncertainty, and recession in a stock-flow consistent model”, Journal of Post Keynesian Economics, 34 (4), 749-776.

DOI: 10.2753/PKE0160-3477340407
This paper develops a stock-flow consistent model that explicitly integrates the role of liquidity preference and perceived uncertainty into the decision-making process of households, firms, and commercial banks. Emphasis is placed on (1) the link between the precautionary motive and the asset choice of the private sector, (2) the effect of perceived uncertainty on the desired margins of safety and borrowing, and (3) the impact of financial obligations on the liquidity preference of households and firms. Performing a simulation experiment, the paper illuminates the channels through which a rise in perceived uncertainty is likely to set off a recessionary process.
Keywords: liquidity preference, perceived uncertainty, recessionary process, stock-flow consistent modeling