Ec6012 Lecture 4
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This document contains notes from a lecture on stock-flow consistent macroeconomic modeling. It includes an introduction to SFC models, their advantages and disadvantages. It then presents the basic setup of an SFC model, including equations for aggregate supply, aggregate demand, households, firms and equilibrium. It shows the dynamic effects of shocks to the interest rate and investment parameter on the model. It concludes by assigning homework to analyze these shocks using an Excel model and references a textbook on monetary economics.
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Ec6012 Lecture 4
- 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. Today EC6012 Lecture 3 Stephen Kinsella SFC Setup Homework & Blogs References SFC Setup Homework & Blogs
- 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. Disadvantages of SFC EC6012 Lecture 3 Stephen Kinsella Complicated Balance Sheet Interactions SFC Setup ‘Dynamics’ difficult to imagine. Homework & Blogs References
- 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. 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. 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. 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. 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. 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. 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.