Money Creation under Full-reserve Banking

Patrizio Lainà, ‘Money Creation under Full-reserve Banking: A Stock-Flow Consistent Model’, Levy Institute Working Paper n.851, 2015
Abstract: This paper presents a stock-flow consistent model+ of full-reserve banking. It is found that in a steady state, full-reserve banking can accommodate a zero-growth economy and provide both full employment and zero inflation. Furthermore, a money creation experiment is conducted with the model. An increase in central bank reserves translates into a two-thirds increase in demand deposits. Money creation through government spending leads to a temporary increase in real GDP and inflation. Surprisingly, it also leads to a permanent reduction in consolidated government debt. The claims that full-reserve banking would precipitate a credit crunch or excessively volatile interest rates are found to be baseless

Eviews code

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 Minskyan-Fisherian SFC model

A new working paper by Ítalo Pedrosa and Antonio Carlos Macedo e Silva, “A Minskyan-Fisherian SFC model for analyzing the linkages of private financial behavior and public debt” is available here
Abstract: This paper builds a stock-flow consistent (SFC) model to analyze how private financial behavior impacts fiscal variables, by exploring the linkages between the financial and productive sides of the economy with prices given by a Phillips curve. We study three different fiscal expenditure regimes: 1. Automatic stabilizer: government expenditures follow an exogenous long run trend; 2. Countercyclical fiscal expenditure; 3. Fiscal austerity: government reduces expenditures when it faces an increase in its debt to capital ratio. The model has three major implications, ratifying Keynesian intuitions. First, an increase in public debt is an unintended consequence of contractionary financial conditions. Second, in most cases countercyclical fiscal expenditures improve both the economic activity and the trajectory of public debt to GDP. Third, austerity policies postpone and magnify the after-shock adjustment, and may not be compatible with fiscal soundness.

Monetary economics: R code

I have received from Hamid Raza, working with Stephen Kinsella in Limerick, a package containing models from Godley & Lavoie Monetary economics, chapters 3 to 9.
They have been published in the model section of the website.
(I have not checked the code yet…)

I deeply thank Hamid, since R is a free software, and the availability of R code will be of great help to anyone who is not willing to purchase a software licence.

A Winter school on AB and SFC models

Applied Macro-Modelling: Fully Scalable Models – 2nd Edition

Winter School On Agent Based And Stock Flow Consistent Modelling
Limerick, January 26th – February 3th

Why You Should Join Our Winter School

If you are a highly motivated student of economics at master or Ph.D. level, or you are working with a research center or a public institution and want to spend one week studying, researching, discussing, and exchanging experiences in the nice atmosphere of an Irish University campus nurtured by international experts and fellow students from all around the world, our winter school offers you:

One-week winter university with international students and lecturers.
An opportunity to produce and confront research outputs such as thesis chapter or working paper with established scholars.
Lab modules, to learn how to implement and apply the theoretical models using software like R, Java.
Social activities

Info: s120.ul.ie/drupal/winterSchool2015