This document provides an overview of stock-flow consistent (SFC) modeling. It discusses the justification and origins of the SFC approach, key features of post-Keynesian SFC models, and some problems and solutions related to SFC modeling. Specifically, it covers:
1) The background and motivation for SFC modeling from an accounting perspective.
2) Main features of post-Keynesian SFC models, including the use of balance sheet matrices, transaction flow matrices, and portfolio decisions.
3) Some challenges with SFC modeling, such as dealing with redundant equations, closures, calibration, and the possibility of multiple equilibria. It also discusses potential solutions to these challenges
This file is created for educational purpose not for sale.
Creator of this presentation is highly appreciated the Authors: Robert T. Jensen and Nolan H. Miller
Source: The American Economic Review, Vol. 98, No. 4 (Sep., 2008), pp. 1553-1577.
Published by: American Economic Association
This is a recording of a revision webinar exploring some of the causes of financial crises in developed and emerging market countries. There are many different types of crises ranging from currency/external debt crises to disturbances in banking systems.
This file is created for educational purpose not for sale.
Creator of this presentation is highly appreciated the Authors: Robert T. Jensen and Nolan H. Miller
Source: The American Economic Review, Vol. 98, No. 4 (Sep., 2008), pp. 1553-1577.
Published by: American Economic Association
This is a recording of a revision webinar exploring some of the causes of financial crises in developed and emerging market countries. There are many different types of crises ranging from currency/external debt crises to disturbances in banking systems.
Principles and Concepts Development
What is the real meaning of development?
Why do some countries develop and others remain poor?
What are the sources of development and how do we measure development?
Does historical record of development help us understand it better?
What are the most influential theories of development and are they compatible?
Is development process of developing nations independent or interdependent with that of developed nations?
Definition of Economic Development: 1950s
In economic terms, development is the capacity of a nation to generate and sustain an annual increase in its GNP of 5% or more.
Traditional economic measures:
GDP: is the market value of all final goods and services produced within a country in a given period of time
Y=C+I+G+NX
GNP: is the market value of all final goods and services produced by permanent residents of a country in a given period of time
GNP= GDP+ net factor income from abroad
Based on the idea of the need for state regulation of the economy. No more self-adjustments
For the prosperity of the economy:
All have to spend as much money as possible;
The state should stimulate aggregate demand growth even by the budget deficit, debt and unsecured issue of money.
Principles and Concepts Development
What is the real meaning of development?
Why do some countries develop and others remain poor?
What are the sources of development and how do we measure development?
Does historical record of development help us understand it better?
What are the most influential theories of development and are they compatible?
Is development process of developing nations independent or interdependent with that of developed nations?
Definition of Economic Development: 1950s
In economic terms, development is the capacity of a nation to generate and sustain an annual increase in its GNP of 5% or more.
Traditional economic measures:
GDP: is the market value of all final goods and services produced within a country in a given period of time
Y=C+I+G+NX
GNP: is the market value of all final goods and services produced by permanent residents of a country in a given period of time
GNP= GDP+ net factor income from abroad
Based on the idea of the need for state regulation of the economy. No more self-adjustments
For the prosperity of the economy:
All have to spend as much money as possible;
The state should stimulate aggregate demand growth even by the budget deficit, debt and unsecured issue of money.
This is a summary of the book of Dr. Ed Morato, a noted guru on entrepreneurship in the Philppines. He was formerly the Dean of Asian Institute of Management and now the President of Asian Center for Entreprenuership. He and his colleagues run a Master of Business Entreprenuership at the Ateneo Graduate School of Business.
There could be no entrepreneurship unless there is personal mastery. You can only conquer others if you can conquer yourself.
Successful inventory management involves creating a purchasing plan that will ensure that items are available when they are needed (but that neither too much nor too little is purchased) and keeping track of existing inventory and its use.
The Complete Inventory Management Guide for RetailersVend
Inventory management keeps many retailers up at night, and for good reason: staying on top of your store’s stock levels is a balancing act that can make or break your sales and customer satisfaction.
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This paper presents two models of key determinants in the evolution of the shadow banking system. First of all, a shadow banking measure is built from a European perspective. Secondly, information on several variables is retrieved basing their selection in previous literature. Thirdly, those variables are grouped in: 1) the base model: real GDP, Institutional investors’ assets, term-spread, banks’ net interest margin and liquidity; and 2) the extended model: the former five plus an indicator of systemic stress, an index of banking concentration and inflation. Finally, regression analysis on those models is conducted for different countries’ samples. Both OLS and panel data analysis is undergone. Results suggest important and consistent geographical differences in relations between shadow banking and key determinant variables’ effects. Thus, this essay provides financial authorities with a valuable benchmark to which they should pay attention before designing optimal policies seeking to reduce the financial risk that shadow banking entails.
Safalta Digital marketing institute in Noida, provide complete applications that encompass a huge range of virtual advertising and marketing additives, which includes search engine optimization, virtual communication advertising, pay-per-click on marketing, content material advertising, internet analytics, and greater. These university courses are designed for students who possess a comprehensive understanding of virtual marketing strategies and attributes.Safalta Digital Marketing Institute in Noida is a first choice for young individuals or students who are looking to start their careers in the field of digital advertising. The institute gives specialized courses designed and certification.
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2024.06.01 Introducing a competency framework for languag learning materials ...Sandy Millin
http://sandymillin.wordpress.com/iateflwebinar2024
Published classroom materials form the basis of syllabuses, drive teacher professional development, and have a potentially huge influence on learners, teachers and education systems. All teachers also create their own materials, whether a few sentences on a blackboard, a highly-structured fully-realised online course, or anything in between. Despite this, the knowledge and skills needed to create effective language learning materials are rarely part of teacher training, and are mostly learnt by trial and error.
Knowledge and skills frameworks, generally called competency frameworks, for ELT teachers, trainers and managers have existed for a few years now. However, until I created one for my MA dissertation, there wasn’t one drawing together what we need to know and do to be able to effectively produce language learning materials.
This webinar will introduce you to my framework, highlighting the key competencies I identified from my research. It will also show how anybody involved in language teaching (any language, not just English!), teacher training, managing schools or developing language learning materials can benefit from using the framework.
Operation “Blue Star” is the only event in the history of Independent India where the state went into war with its own people. Even after about 40 years it is not clear if it was culmination of states anger over people of the region, a political game of power or start of dictatorial chapter in the democratic setup.
The people of Punjab felt alienated from main stream due to denial of their just demands during a long democratic struggle since independence. As it happen all over the word, it led to militant struggle with great loss of lives of military, police and civilian personnel. Killing of Indira Gandhi and massacre of innocent Sikhs in Delhi and other India cities was also associated with this movement.
Exploiting Artificial Intelligence for Empowering Researchers and Faculty, In...Dr. Vinod Kumar Kanvaria
Exploiting Artificial Intelligence for Empowering Researchers and Faculty,
International FDP on Fundamentals of Research in Social Sciences
at Integral University, Lucknow, 06.06.2024
By Dr. Vinod Kumar Kanvaria
Biological screening of herbal drugs: Introduction and Need for
Phyto-Pharmacological Screening, New Strategies for evaluating
Natural Products, In vitro evaluation techniques for Antioxidants, Antimicrobial and Anticancer drugs. In vivo evaluation techniques
for Anti-inflammatory, Antiulcer, Anticancer, Wound healing, Antidiabetic, Hepatoprotective, Cardio protective, Diuretics and
Antifertility, Toxicity studies as per OECD guidelines
Introduction to AI for Nonprofits with Tapp NetworkTechSoup
Dive into the world of AI! Experts Jon Hill and Tareq Monaur will guide you through AI's role in enhancing nonprofit websites and basic marketing strategies, making it easy to understand and apply.
A review of the growth of the Israel Genealogy Research Association Database Collection for the last 12 months. Our collection is now passed the 3 million mark and still growing. See which archives have contributed the most. See the different types of records we have, and which years have had records added. You can also see what we have for the future.
This slide is special for master students (MIBS & MIFB) in UUM. Also useful for readers who are interested in the topic of contemporary Islamic banking.
June 3, 2024 Anti-Semitism Letter Sent to MIT President Kornbluth and MIT Cor...Levi Shapiro
Letter from the Congress of the United States regarding Anti-Semitism sent June 3rd to MIT President Sally Kornbluth, MIT Corp Chair, Mark Gorenberg
Dear Dr. Kornbluth and Mr. Gorenberg,
The US House of Representatives is deeply concerned by ongoing and pervasive acts of antisemitic
harassment and intimidation at the Massachusetts Institute of Technology (MIT). Failing to act decisively to ensure a safe learning environment for all students would be a grave dereliction of your responsibilities as President of MIT and Chair of the MIT Corporation.
This Congress will not stand idly by and allow an environment hostile to Jewish students to persist. The House believes that your institution is in violation of Title VI of the Civil Rights Act, and the inability or
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Postsecondary education is a unique opportunity for students to learn and have their ideas and beliefs challenged. However, universities receiving hundreds of millions of federal funds annually have denied
students that opportunity and have been hijacked to become venues for the promotion of terrorism, antisemitic harassment and intimidation, unlawful encampments, and in some cases, assaults and riots.
The House of Representatives will not countenance the use of federal funds to indoctrinate students into hateful, antisemitic, anti-American supporters of terrorism. Investigations into campus antisemitism by the Committee on Education and the Workforce and the Committee on Ways and Means have been expanded into a Congress-wide probe across all relevant jurisdictions to address this national crisis. The undersigned Committees will conduct oversight into the use of federal funds at MIT and its learning environment under authorities granted to each Committee.
• The Committee on Education and the Workforce has been investigating your institution since December 7, 2023. The Committee has broad jurisdiction over postsecondary education, including its compliance with Title VI of the Civil Rights Act, campus safety concerns over disruptions to the learning environment, and the awarding of federal student aid under the Higher Education Act.
• The Committee on Oversight and Accountability is investigating the sources of funding and other support flowing to groups espousing pro-Hamas propaganda and engaged in antisemitic harassment and intimidation of students. The Committee on Oversight and Accountability is the principal oversight committee of the US House of Representatives and has broad authority to investigate “any matter” at “any time” under House Rule X.
• The Committee on Ways and Means has been investigating several universities since November 15, 2023, when the Committee held a hearing entitled From Ivory Towers to Dark Corners: Investigating the Nexus Between Antisemitism, Tax-Exempt Universities, and Terror Financing. The Committee followed the hearing with letters to those institutions on January 10, 202
Normal Labour/ Stages of Labour/ Mechanism of LabourWasim Ak
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3. Outline
1. Justification, background and origins of the
SFC approach
2. Main features of the PK SFC approach
3. Problems (and solutions) with the SFC
approach
UMKC March 2014
5. 1.1 The financial crisis: those that saw it
coming
• « „Accounting‟ (or flow-of-funds) models of the
economy turn out to be the shared mindset of a large
subset of those analysts who worried about a credit-
cum-debt crisis followed by recession, before the
policy and academic establishment did.»
• « They are „accounting‟ models in the sense that they
represent households‟, firms‟ and governments‟
balance sheets and their interrelations, and that
accounting identities play a major role in the model
structure and outcomes.» (Bezemer, 2010)
UMKC March 2014
6. 1.2 … and those who will see it coming
• « By building an accounting framework that follows the
circulation of money through the economy, we can therefore
ensure that we account for all the critical flows of financing that
lead to the stocks of assets and liabilities in which financial
fragility can build….Looking ahead, we hope that using a
framework that draws out the linkages between activity and
balance sheets of the financial sectors can make a contribution
towards the detection of growing financial fragilities.» (Barwell
and Burrows, 2011, Bank of England).
See also Bê Duc and Le Breton 2009, ECB
UMKC March 2014
7. 1.3 Standard accounting matrix in
macro
Meschede July 2013
+ Sources of funds; – Uses of funds
8. 1.4 Drawbacks of standard macro
• What form does personal saving take?
• Where does personal saving go?
• Where does the finance for investment come from?
• How are government budget deficits financed?
• Which sector provides the counterparty to every
transaction in assets?
• Standard macro relies on the 1953 presentation of
the UN system of national accounts (SNA).
• But there has been a fully integrated SNA version
since 1968 (revised in 1993 and 2008)!
UMKC March 2014
9. 1.5 SFC redefined
• Many models and traditions can claim to be
provide consistency between stocks and
flows.
• Perhaps a more appropriate name would
have been:
– Post-Keynesian stock-flow consistent
approach
– Real stock-flow monetary model
– Financial stock-flow coherent approach
– Sectoral stock-flow coherent approach
UMKC March 2014
10. Cambridge Growth
Project
R. Stone
Input-Output Growth
Model
L. Johansen
New Cambridge
Models
W. Godley – F. Cripps
Yale General
Equilibrium Models
J. Tobin – W. Brainard
Fixed-Price
Multiplier Models Harvard CGE Models
G. Pyatt – E. Thorbecke L. Taylor / S. Robinson
SFC Models KMG Models CGE Models
AS/AD Growth
Models
S. Turnovsky / T. Sargent
StructuralistModels
NeoclassicalModels
1.6 A family-tree of accounting-based
macromodels
UMKC March 2014
Flaschel, Semmler,
Chiarella, Franke
11. 1.7 Network of SFC models (Caversazi
and Godin, 2013)
UMKC March 2014
13. Balance sheet matrix of the Lavoie and Godley
(2001-02) model
UMKC March 2014
Households Firms Banks ∑
Fixed
capital
+K +K
Deposits +Dh −D 0
Loans −Bf +B 0
Shares +s∙ps −s∙ps 0
Balance −Vh −Vh 0 −K
∑ 0 0 0 0
14. 2.1 Features of the transaction matrix
• All rows sum to zero (counterparties)
• All columns sum to zero (budget constraint)
• Everything comes from somewhere and everything goes
somewhere.
• There should be no « black holes ».
• The matrix can be made as complicated as needed.
• The flow matrix, along with a revaluation matrix (capital
gains and losses, not shown here) must be linked to the
stock matrix, to find the evolution of stocks.
UMKC March 2014
15. UMKC March 2014
Households Firms Banks
Account Current Capital Current Capital ∑
Consumption − C + C 0
Investment + I −I 0
Δinventory stocks + ΔIN − ΔIN 0
Wages + wL − wL 0
Net profits + PD −(PND +PD) + PND 0
Interest on loans − iB∙B(−1) + iB ∙B(−1) 0
Interest on deposits + iD ∙D(−1) iD ∙D(−1) 0
Δ in loans + ΔB − ΔB 0
Δ in deposits − ΔD + ΔD 0
Shares − psΔs + psΔs 0
∑ 0 0 0 0 0 0
A transactions-flow matrix in a closed economy
without government
16. 2.2 The main purpose
• The Holy Grail of economics is the ability to
integrate the real economy with the financial
economy.
• The purpose is « to show how the whole system fits together
and cast banks in a realistic role » (Godley 1996).
• “The structure of an economic model that is relevant for a
capitalist economy needs to include the interrelated balance
sheets and income statements of the units of the economy”
(Minsky 1996).
• SFC models integrate money seen as a flow with money
seen as a stock.
• SFC models also provide a link, or fill the gap, between
short-run analysis and long-run analysis.
UMKC March 2014
17. 2.3 THE SFC APPROACH I
• The three matrices (flows, stocks, revaluation) and
their links (the stock-flow coherent (SFC) approach)
help pin down the evolution of whole economic
systems, which is what macroeconomics is.
• The claim here is that stock-flow consistent models
(SFC models), inspired in particular by the work of
Wynne Godley, are the likely locus of some form of
post-Keynesian consensus in macroeconomics, as it
allows to entertain both monetary and real issues
within a single model, by dealing both with tangible
and financial capital.
UMKC March 2014
18. 2.4 THE SFC APPROACH II
• The SFC approach is a response to the critics who, as reported
by Chick (1995, p. 20), believe that PKE is « not coherent, not
scientific, not formal, not logical »
• « The fact that money stocks and flows must satisfy accounting
identities in individual budgets and in an economy as a whole
provide a fundamental law of macroeconomics, analogous to
the principle of conservation of energy in physics » (Godley and
Cripps 1983, p. 18).
• SFC restrictions « remove many degrees of freedom from
possible configurations of patterns of payments at the macro
level, making tractable the task of constructing theories to close
the accounts into complete models » (L. Taylor 2004, p. 2).
UMKC March 2014
19. 2.5 The quadruple entry principle
• « Because moneyflows transactions involve two transactors, the
social accounting approach to moneyflows rests not on a
double-entry system but on a quadruple-entry system »
(Copeland, 1949)
• « The principle of double entry bookeeping, where financial
assets are liabilities on another balance sheet and where every
entry on a balance sheet has a dual in another entry on the
same balance sheet, means that every transaction in assets
requires four entries » (Minsky, 1996)
UMKC March 2014
22. 2.6 Portfolio decisions
• SFC integrates money as a flow (the monetary circuit
theory) and money as a stock.
• The implicit assumption is that financial assets are
imperfect substitutes.
• The framework is inspired by the work of James
Tobin (1969).
• This was slighty modified and corrected in Godley
(1996).
• It does have some resemblance with the asset
pricing model proposed by Peter Skott (1989) and
Randy Wray (1992).
UMKC March 2014
25. 2.9 Buffers vs market-clearing
• In neoclassical economics, markets clear through
price changes.
• In post-Keynesian economics, markets clear either
because quantities supplied are assumed to adjust to
demand within the period or because of buffers. The
price mechanism in our models only plays a clearing
role for stock market equities.
• SFC models normally have a buffer for each sector:
– Stocks of inventories and loans for producing firms
– Money deposits for households
– Bills held, or advances from the central bank, for private
banks
– Bills issued for the government
UMKC March 2014
26. 2.10 Buffers again
• “In the model every column sums to zero, and then it
follows that once every variable in a column bar one
has been determined that last variable is logically
implicit. This logical constraint on the sum of a
sector‟s activities has a causal interpretation,
because, with all decisions having to be made in an
uncertain world, there has to be, for every sector,
some component of the sum of their transactions
which flexibly takes on the character of a residual,
and which, as Godley and Lavoie emphasize, cannot
be directly controlled.” (Godin, Tiou and Kinsella
2012)
UMKC March 2014
27. 2.11 Main features: Demand-led
vs supply-led models
• Our models are essentially demand-led.
• It is possible to introduce supply-led effects
(Phillips curves, and so on)
• One could also introduce other supply effects,
such as reduced capacity when producing
firms default on some of their loans
UMKC March 2014
28. 2.12 Optimization vs reaction to
disequilibria
• In neoclassical economics, it‟s all optimization under
constraints.
• In PK SFC models, economic agents often have
stock-flow targets (inventories to sales ratio, wealth to
disposable income ratio, capital adequacy ratios, …).
• Economic agents react to these disequilibria by trying
to close the discrepancy.
• Several different closures are possible.
UMKC March 2014
30. 3.1 SFC models: counting equations
and the redundant equation
• Each variable must be defined by one equation (a behavioural
equation, a definitional equation, or an identity equation).
• To track variables (in large models), it is best to put each variable on
the left-hand side of one and only one equation.
• Each column of the transaction-flow matrix provides an identity, that
can be used to define one variable (say m).
• Each row that contains more than two terms also provides an
identity (say n) {If there are only two terms, the identity is “ordinary”,
i.e., obvious, and the two terms need not be distinguished (Gs, Gd)}.
• One of these identities must be removed from the simulation model,
for otherwise the software will tell you that the model is over-
determined. This last equation is the “redundant” or “hidden”
equation.
UMKC March 2014
31. 3.2 Closures
• The same model can be closed in several different ways.
• This can involve bumping and inversing several
equations
• For instance, a 2-country model can be closed with the
assumption of a fixed exchange rate, which is held
constant because:
– A central bank accepts to purchase/sell any foreign asset at the
constant exchange rate (endogenous foreign reserves)
– Interest rates are let to move freely to keep the exchange rate
constant, while foreign reserves stay constant
– Government expenditures are let to move freely to keep the
exchange rate constant, while foreign reserves stay constant
UMKC March 2014
32. 3.3 Traditional construction of models
• Start by assuming that all stocks of the balance sheet
add up.
• Make sure that the row identities of the transactions-
flow matrix are fulfilled.
• Make sure the adding-up conditions of the
parameters of the portfolio component are verified.
• There is no need to start from the equilibrium.
• Running the model will get you there, if the
equilibrium is stable.
• In complex models, it may be quite long and difficult
to find a steady state (start from a simple model, and
add feedback relations afterwards)
• Once an equilibrium has been found, parameters can
be modified to examine what happens.
UMKC March 2014
33. 3.4 Limits of SFC: It can be
cumbersome
• As soon as more realistic models are being considered, the
number of equations rises very quickly.
• A partial way out has been suggested by Mouakil (2006), by
ignoring all “ordinary” identities.
• But still, models remain large.
• Continous time vs discrete time or differential equations vs
difference equations
UMKC March 2014
34. 3.5 Limits of SFC: controversies
remain
• While the identities of the model constrain the type of
results that we can obtain, behavioural equations still
play a crucial role.
• SFC modeling cannot remove all controversies in
macroeconomics or monetary economics.
UMKC March 2014
35. 3.6 Limits of SFC: The need for
calibration and empirically-based work
• In our book (Godley and Lavoie 2007), we made
(nearly) no attempt at calibration.
• More effort needs to be put in calibration
• More effort could be put into empirical work.
• Are new time series techniques adequate to deal with
the old problems of collinearity encountered by Tobin
and his associates?
UMKC March 2014
36. 3.7 Calibration and real-world data
• “Finding stock flow norms is, at present, a black art, and more
error than trial is involved in finding them as Taylor (2008)
argues. This is unsatisfactory intellectually, but also raises a
practical concern over the stability of these models. If they are
sensitive to small changes in the values of simple parameters
like the propensity to consume out of past income by
households, say, then how valid are they as representations of
reality? The contribution of our paper, and indeed the effort of
our research program, is to provide the missing link between the
simulated worlds described by Godley and Lavoie to a
coherently estimated model built from real world data.”
• (Godin, Tiou and Kinsella, 2012)
UMKC March 2014
37. 3.8 Solution
• Godin, Tiou and Kinsella (2012) propose a method and an
algorithm to move, within a model which is known to be SFC,
from either assumed or real-world stock and flow data to an
estimate of the parameter values.
• Even for a model as simple as the chapter 3 model of G&L
(model SIM), which can be solved analytically, the method does
well for some parameters (e.g., the tax rate) but not for others
(the propensities to consume out of current income and out of
wealth), because these parameters are undetermined (too many
parameters, not enough equations).
UMKC March 2014
38. 3.9 Limits of SFC: The possibility of
multiple equilibria
• “Using SFC models for theoretical analysis is made rather
complicated by the fact that these models become complex and
hence intractable once they seek to incorporate more features of
reality. Thus analytical solutions are difficult to obtain, if at all.
This is true in particular once non-linearity is introduced in the
model and hence the possibility of multiple equilibria emerges.
• Solving the model numerically for preselected parameter values
can therefore help to overcome the first problem and this
approach is therefore frequently used by modellers. Accordingly,
the researcher selects one or several sets of parameter values
which are economically plausible and then evaluates the model
using these values for both short and long-run equilibria.”
(Biagio Ciuffo, 2014)
UMKC March 2014
39. 3.10 How do we know the model
behaves identically for all plausible
parameter values?
• “Alas, this approach leads to another difficulty: how should
parameters be selected in the first place? After all, for most
parameters there exists a host of economically plausible values
and, by implication, there is also an infinite number of (in that
sense) plausible parameter combinations in the n-dimensional
hyperspace of assumptions. Picking just one such combination
would therefore seem rather arbitrary while the properties of the
model for other parameter configurations would remain basically
un-known.” (Ciuffo, 2014)
UMKC March 2014
40. 3.11 Solution: Monte-Carlo simulations
• “First, an economically/logically plausible range is determined
for each parameter. We then use a Monte Carlo approach to
examine which combinations of parameters and starting values
(feasibility regions) produce economically meaningful equilibria
for the short and long-run and whether the long-term equilibria
thus identified are in fact stable. In addition we undertake a
sensitivity analysis for all parameters which allows us to gauge
the extent to which model results are driven by certain
parameters and starting values.” (Ciuffo, 2014)
UMKC March 2014
41. The Dos Santos Zezza (2008) model in
Monte-Carlo experiments
UMKC March 2014
a = prop to
consume
out of wealth
vh = wealth to
income ratio
of households
vh
a
42. Conclusion
• Still lots to do.
• There are now papers mixing agent-based
modeling with the stock-flow consistent
approach.
• Everybody does not need to do SFC models !
• Draw of G&L !!!!
UMKC March 2014