Ec6012 Lecture 4

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Ec6012 Lecture 4

  1. 1. EC6012 Lecture 3 Stephen Kinsella SFC Setup Homework & Blogs EC6012 Lecture 4 References A First SFC Model Stephen Kinsella Dept. Economics, University of Limerick. stephen.kinsella@ul.ie January 18, 2008
  2. 2. Today EC6012 Lecture 3 Stephen Kinsella SFC Setup Homework & Blogs References SFC Setup Homework & Blogs
  3. 3. Advantages of SFC EC6012 Lecture 3 Stephen Kinsella SFC Models “intrinsically dynamic” (Turnovsky, 1977, SFC Setup p.3); Homework & Blogs Model financial markets & real-financial interactions References explicitly.
  4. 4. Disadvantages of SFC EC6012 Lecture 3 Stephen Kinsella Complicated Balance Sheet Interactions SFC Setup ‘Dynamics’ difficult to imagine. Homework & Blogs References
  5. 5. Aggregate Supply EC6012 Lecture 3 Stephen Kinsella AS SFC Setup Homework & Blogs References pt = wt .λt .(1 + τ ) (1) Symbols p Price Level; W Money wage per unit; λ labour/output ratio; τ mark up rate
  6. 6. Aggregate Demand EC6012 Lecture 3 Stephen Kinsella Consumption SFC Setup Homework & Blogs Ct Xt Vht−1 References = (1 − π).(1 − θ). + a. (2) pt .Kt−1 Kt pt .Kt−1 Investment ∆Kt δK0 = + (α.π + β − θ1 .ilt ) (3) Kt−1 K0−1
  7. 7. Households & Firms EC6012 Lecture 3 Stephen Kinsella Households SFC Setup Homework & Blogs pet .Etd = delta.Vht (4) References d Dt = (1 − δ).Vht (5) δ = −ib + ρ (6) Firms ∆Kt Ets = χ.Kt = χ.Kt−1 .(1 + ) (7) Kt−1
  8. 8. Equilibrium EC6012 Lecture 3 Stephen Kinsella SR Eqm SFC Setup Homework & Blogs (1 − δ).vht−1 + savh References vht = (8) 1 + gt = δ Handout Equilibrium Properties
  9. 9. Equilibrium ShocksmodelInteresta Rate the rate of interest (Regime 1b) Figure 8. Dynamic response of to variables to shock to u vh 1.7 0.815 0.81 1.6 0.805 1.5 0.8 0.795 1.4 0.79 1.3 0.785 1.2 0.78 0.775 1.1 0.77 1 24 32 56 64 72 80 88 96 16 40 48 0 8 g b 0.058 1.2 0.057 1.1 0.056 1 0.055 0.9 0.054 0.8 0.053 0.7 0.052 0.6 0.051 0.5 14 21 28 35 42 49 56 63 70 77 84 91 98 0 7 14 21 28 35 42 49 56 63 70 77 84 91 98 0 7
  10. 10. EC6012 Lecture 3 Download Excel Sheet Stephen Kinsella Show a change in interest rate on bonds from 0.07 to 0.1. What effect does this have in u-vh space? SFC Setup Homework & Blogs Reset the model. Show a change in the value of α from References 0.3 to 0.7. Due up on the blogs next week. Read Godley and Lavoie (2006, Chapter 3).
  11. 11. References EC6012 Lecture 3 Stephen Kinsella Wynne Godley and Marc Lavoie. Monetary Economics An SFC Setup Integrated Approach to Credit, Money, Income, Homework & Blogs Production and Wealth. Palgrave-Macmillan, 2006. URL References http://www.palgrave.com/products/Catalogue. aspx?is=0230500552.

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