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.

Flow of funds at the ECB

This article, “Flow-of-funds analysis at the ECB”, provides an excellent technical description of the European system for flow-of-fund statistics, and some good examples of how they are used at the ECB.
I would recommend it for anyone interesed in anyone doing SFC empirical modeling. It is a pity that the authors have not discovered yet the work of Godley and the book Monetary economics, which is well known at the Bank of England.

An SFC model on Brazil

José Luis Oreiro gave me the link to this paper

Public Debt Management in a Dynamic Stock-Flow Consistent Model: Implications for the Brazilian case
Authors: Breno Santana Lobo – José Luis Oreiro

Abstract:
The existence of floating-rate bonds in the composition of public debt is associated with some factors that tend to negatively affect the trajectory of the economy over time. The main objective of this article is to analyze the changes caused by a change in the public debt composition over the dynamics of a given economy. In order to do that , we built a dynamic stock-flow consistent post-keynesian model, in which the government bond market is modeled to reflect the main features of the Brazilian case. The parameters and initial conditions of the model are calibrated in order to form a baseline scenario that reflects in a satisfactory way the main stylized facts of modern economies. The simulation results indicate that the extinction of floating-rate bonds does not have negative effects on the economy in the short run. In the long run, however, uncontrolled public spending due to an increase in the debt service takes the economy to a path of instability. To stabilize the economy, government should adjust its economic policy to its debt management policy. Fiscal policy, monetary policy and income policy may be used by the government. A restrictive fiscal policy can be useful to stabilize the economy. However, it is associated with smaller growth rates. An active fiscal policy, associated with some specific objective, can reverse this result, suggesting that the fiscal policy can contribute to control inflation. Restrictive monetary policy can also be used to stabilize the economy. However, it is not the best policy to control inflation. Income policy has the best results.

Reducing Economic Imbalances in the Euro Area

A new Levy Institute Working Paper analyzing sectoral financial balances in the Euro Area

Gregor Semieniuk, Till van Treeck, and Achim Truger, ‘Reducing Economic Imbalances in the Euro Area: Some Remarks on the Current Stability Programs, 2011–14’ Levy Institute Working paper #694, October, 2011.

Link to PDF