SFC + ABM  Stephen Kinsella  University of LimerickCRISIS Workshop, Lorenz CentreLeiden April 10 2013
OVERVIEW• Fundedwith a series of grants from the Institute for New Economic Thinking, INET, Rannis, Statistics Iceland, an...
Simple Story.
Irish Department of Finance 2007:     “The	 economic	 and	 fiscal	 outlook	 over	 the 	 period     2008	- 2010	 is	 as	 fol...
WAYS TO UNDERSTAND THE CRISIS• Nothingspecial about our collapse• Exitingthe crisis now most likely a slow, but upward, gr...
Household behavior (see handout)250"                                                                                      ...
STOCK FLOW CONSISTENT           MODELS• Morris A. Copeland (1949) is the father of the Flow of Funds  accounting. (Federal...
GODLEY & LAVOIE (2007)Sectoral modelsSet up balance and transaction matricesBuild a model’s equations from the balance she...
Data                       Consistency/                     Frequency/Bubble                     issues/Transfer pricing  ...
SFC                      ABM✴ Sectoral              ✴ Much more developed,✴ No black holes        connections to complexit...
KINSELLA ET AL 2012: SFC MODEL  WITH INTERACTING AGENTS• 4 Sectors, households, firms, banks, government.• Workers...  • se...
NICE FEATURESno representative agentno utility functionno rational expectationslarge number of heterogeneous agentsindivid...
COOL STUFF: MEASURING         MOBILITY• Via G.S. Fields & E.A.  Ok, “Measuring  Movement of Income”,  Economica (1999).• M...
CONCLUSION & FURTHER           WORK• Promising connections/crossovers• Benchmark model to be built, an INET group exists f...
REFERENCES• Kinsella       & Khalil 2011 Debt Deflation Traps within Small Open Economies• Kinsella         & Khalil 2011 B...
REFERENCES• O’Shea & Kinsella (2010) Solution and Simulation of Large Stock Flow Consistent Monetary Production Models Via...
Stock Flow Consistent Models and Agent Based Models
Stock Flow Consistent Models and Agent Based Models
Stock Flow Consistent Models and Agent Based Models
Stock Flow Consistent Models and Agent Based Models
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Stock Flow Consistent Models and Agent Based Models

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A talk given at Complexity Models for Systemic Instabilities and Crises
from 8 Apr 2013 through 12 Apr 2013, Lorentz Centre Leiden.

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Stock Flow Consistent Models and Agent Based Models

  1. 1. SFC + ABM Stephen Kinsella University of LimerickCRISIS Workshop, Lorenz CentreLeiden April 10 2013
  2. 2. OVERVIEW• Fundedwith a series of grants from the Institute for New Economic Thinking, INET, Rannis, Statistics Iceland, and Irish Research Council.• Overarchinggoal is to build a workable model comparable to models used in CBs/Govt Departments for policy evaluation/ counterfactual scenario testing.
  3. 3. Simple Story.
  4. 4. Irish Department of Finance 2007: “The economic and fiscal outlook over the period 2008 - 2010 is as follows: GDP is forecast to expand at an average rate of 3.5% per annum (GNP by just under 3.5%). The average annual increase in employment is projected to be just under 11.5%, with unemployment assumed to average about 5.5%.”➡In that 2-year period, output as measured by real gross domestic product fell by almost 11%, unemployment rose from just under 4% to over 9%.
  5. 5. WAYS TO UNDERSTAND THE CRISIS• Nothingspecial about our collapse• Exitingthe crisis now most likely a slow, but upward, grind.
  6. 6. Household behavior (see handout)250" 18" 16"200" 14" 12"150" 10" 8"100" 6" 4" 50" 2" 0" 0" 2002" 2003" 2004" 2005" 2006" 2007" 2008" 2009" 2010" 2011" Debt/Disposable"Income"(LHS,"%)" Gross"Saving/Disposable"Income"(RHS,"%)" Source: Institutional accounts for Households including NPISH (S.14+S.15), CSO.ie
  7. 7. STOCK FLOW CONSISTENT MODELS• Morris A. Copeland (1949) is the father of the Flow of Funds accounting. (Federal Reserve Bureau Z.1 Release).• Copeland’s idea was to enlarge the social accounting perspective - up to that moment used mainly in the study of national income - to the study of money flows.• Essentially trying to find an answer to fundamental economic question: ‘when total purchases of our national product increase, where does the money come from to finance them? When purchases of our national product decline, what becomes of the money that is not spent?’ (Copeland, 1949, p. 254)
  8. 8. GODLEY & LAVOIE (2007)Sectoral modelsSet up balance and transaction matricesBuild a model’s equations from the balance sheetrelations (Behavioural and Identity relations)Solve for steady state (Question over this now)Shock using ‘policy experiments’ through simulation.Left open the question of estimating these models.This is my group’s central problem.
  9. 9. Data Consistency/ Frequency/Bubble issues/Transfer pricing Application Estimation Want this to be Estimating SFC models is very hard,as policy-relevant esp. portfolio balance as possible Equations Constantly balancing completeness off against complexity
  10. 10. SFC ABM✴ Sectoral ✴ Much more developed,✴ No black holes connections to complexity/✴ Avoids lots of network theory/etcneoclassical modeling ✴ Individual rather thanproblems sectoral✴ Focus on closures ✴ Portfolio estimation/✴ Needs solution simulation v. easymethods ✴ Models agent interactions more naturally ✴ Focus on empirical regularities eg power laws
  11. 11. KINSELLA ET AL 2012: SFC MODEL WITH INTERACTING AGENTS• 4 Sectors, households, firms, banks, government.• Workers... • search for work. • work for a wage or get dole. • spend money on consumption. • spend money on education.• Firms... • hire workers. • pay wages. • receive revenue from selling output.• Government: collects taxes and provides dole.• Banks lend out, can go broke.• Model allows for changes in education/employment/income/wealth
  12. 12. NICE FEATURESno representative agentno utility functionno rational expectationslarge number of heterogeneous agentsindividual behavior is unpredictableindividuals follow simple rulesindeterminacy at the micro level (random selection froma given distribution)SFC Adding up constraints.
  13. 13. COOL STUFF: MEASURING MOBILITY• Via G.S. Fields & E.A. Ok, “Measuring Movement of Income”, Economica (1999).• Mb=1/N*∑ |log m_{0}−log m_{1}|• Implies Higher savings → lower mobility.
  14. 14. CONCLUSION & FURTHER WORK• Promising connections/crossovers• Benchmark model to be built, an INET group exists for this now.• Lots of unexplored areas, open questions, low hanging and high- hanging fruit.• Fun times ahead!
  15. 15. REFERENCES• Kinsella & Khalil 2011 Debt Deflation Traps within Small Open Economies• Kinsella & Khalil 2011 Bad Banks Choking Good Banks: Simulating Balance Sheet Contagion• Kinsella & Godin 2012 Leverage, Liquidity and Crisis: A Simulation Study
  16. 16. REFERENCES• O’Shea & Kinsella (2010) Solution and Simulation of Large Stock Flow Consistent Monetary Production Models Via the Gauss Seidel Algorithm• Godin et al (2012) Method to Simultaneously Determine Stock, Flow, and Parameter Values in Large Stock Flow Consistent Models• Work in progress w/ Rudi Von Arim (UTAH) on ‘solving’ and studying SFC matrices numerically.

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