- Hardcover: 576 pages
- Publisher: Palgrave Macmillan (1 Dec 2006)
- Language English
- ISBN-10: 0230500552
- ISBN-13: 978-0230500556
- Product Dimensions: 22.3 x 14.7 x 3.4 cm
- Amazon Bestsellers Rank: 848,495 in Books (See Top 100 in Books)
- See Complete Table of Contents
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Review
'The framework that Godley and Lavoie develop, with a consistent numerical and simulational handle on the various models, is a return to a majestic Wicksellian tradition…A whole generation of graduate students have been brought up on policy nihilism, bordering on paralysis in the face of policy dilemmas. A new generation, armed with the tools, concepts and models developed by Godley and Lavoie, can now return to the grand traditions of macroeconomics as an experimental science, focusing on policy.' – K. Vela Velupillai, Fellow, Girton College, Cambridge, UK, and Professor of Economics, University of Trento, Italy
'Wynne Godley has been the moving force behind keeping quantitative non-mainstream macroeconomics alive and flourishing for the last several decades...His work is inspiring, and will guide policy-oriented macroeconomic modellers for decades to come.' – Lance Taylor, Cambridge Journal of Economics
'...[This] clearly deserves to become a standard reference for everybody interested in SFC modelling in particular and modern macroeconomics in general. There are already first signs that other economists are indeed inspired by this way of thinking about the economy...' - Till van Treeck, Intervention, European Journal of Economics and Economic Policies
Product Description
This book challenges the mainstream paradigm, which is based on the inter-temporal optimisation of welfare by individual agents. It introduces a new methodology for studying how it is institutions (firms, banks, governments, foreigners and households) which create flows of income, expenditure and production together with stocks of assets (including money) and liabilities, thereby determining how whole economies evolve through time. It is a central contention that any realistic representation of a monetary economy must be grounded in a fully articulated system of national income and flow of funds accounts which is so complete that the nth variable is logically implied by the other n-1. As the financial balances of each sector have exact counterparts in changes in stock variables, historical time is introduced into the basic system of concepts, with asset and liability stocks providing the link between each period and each succeeding period.
It is taken as axiomatic that decisions are based on expectations about the future reached under conditions of uncertainty, so for every sector there must exist at least one flexible option or "buffer" over which that sector has no direct control and which adjusts passively when expectations are falsified. For firms the buffer will normally take the form of inventories, for banks and governments it will be stocks of government securities, for households it will be stocks of credit money. Accordingly, outside financial markets there is neither need nor place for equilibrium conditions to bring supply into equivalence with demand. It will almost always be quantities rather than prices which give the signals which keep the economy on track.
Starting with extremely simple stock flow consistent (SFC) models, the text describes a succession of increasingly complex models, using a conventional narrative style backed up by equations which bring precision to individual propositions. However, underlying each narrative there exists a simulation model constructed with such rigour that, in harmony with its basis in comprehensive accounting, there is always one equation which is implied logically by all the others. Solutions of these models are used to illustrate, with charts, ways in which whole economies evolve when shocked in various ways. Readers will be able to download all the models and explore their properties for themselves.
A major conclusion is that economies require management via fiscal and monetary policy if full employment without inflation is to be achieved.
It is taken as axiomatic that decisions are based on expectations about the future reached under conditions of uncertainty, so for every sector there must exist at least one flexible option or "buffer" over which that sector has no direct control and which adjusts passively when expectations are falsified. For firms the buffer will normally take the form of inventories, for banks and governments it will be stocks of government securities, for households it will be stocks of credit money. Accordingly, outside financial markets there is neither need nor place for equilibrium conditions to bring supply into equivalence with demand. It will almost always be quantities rather than prices which give the signals which keep the economy on track.
Starting with extremely simple stock flow consistent (SFC) models, the text describes a succession of increasingly complex models, using a conventional narrative style backed up by equations which bring precision to individual propositions. However, underlying each narrative there exists a simulation model constructed with such rigour that, in harmony with its basis in comprehensive accounting, there is always one equation which is implied logically by all the others. Solutions of these models are used to illustrate, with charts, ways in which whole economies evolve when shocked in various ways. Readers will be able to download all the models and explore their properties for themselves.
A major conclusion is that economies require management via fiscal and monetary policy if full employment without inflation is to be achieved.
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