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Wynne Godley, Alex Izurieta (2004) Balances, imbalances and fiscal targets: a new Cambridge view, CERF Cambridge Endowment for Research in Finance, University of Cambridge,, Working paper

Url: Not available

assets={foreign; Public Assets; private assets},
characteristics={Open},
date-added={2012-08-20 16:35:24 +0200},
date-modified={2012-09-05 11:29:10 +0200},
methodology={Empirical; Theoretical},
sectors={Households; Firms; Government; Foreign}

Abstract: This paper first deploys a simplified accounting matrix to illustrate the concepts to be used. It will argue that macroeconomic analysis is facilitated if the main income and expenditure variables which make up the GDP are arranged in a double entry format so that they can all be seen as transactions involving at least two parties. Such a framework shows how the gap between each sector’s receipts and outlays implies an equivalent rise or fall in its net acquisition of financial assets. One conclusion will be that financial balances (relative to income flows) must stay within certain limits if debts are not to grow excessively, implying that the monitoring of these balances may yield a warning that unsustainable processes are at work, with strategic implications for the conduct of policy. Furthermore, the fact that the net acquisition of financial assets by any one sector necessarily implies an equivalent change in the opposite direction in the sum of net acquisition by other sectors, has strong implications for the way in which targets for public borrowing should be set. The main conclusions will be illustrated using US and UK data.

Keywords: balancing, financial fragility, flow of funds

November 13, 2010 | Comments Closed