Two-Household Stock-Flow Consistent Model of the UK Economy: Post-COVID Inflation and Incomes Policy

Oktay Özden and Alp Erinç Yeldan

No PKWP2519, Working Papers from Post Keynesian Economics Society (PKES)

Abstract: We present a two-household stock-flow consistent (SFC) model of the UK economy using data from the Office for National Statistics (ONS). The model explores the dynamics of post-COVID inflation with a particular focus on the interplay between inflation and income inequality, drawing on the theoretical framework of income conflict. It comprises six sectors: households (disaggregated into rentiers and workers), non-financial corporations, monetary financial corporations, insurance corporations and pension funds, the government, and the rest of the world. Employing a combination of estimation and calibration techniques, the model replicates key macroeconomic aggregates reported by the ONS between 2020 and 2023. We impose several short-term scenarios on the model to evaluate the model’s capabilities to capture distributive tensions underlying recent inflationary developments. Our results suggest that an orthodox monetary policy intervention by the Bank of England exclusively administered through interest rate management performs poorly in taming inflation and further worsens income inequality. In contrast, an alternative scenario based on progressive incomes policy administered through increased taxation of rentier incomes, rather than any monetary intervention on the interest rate, is found to generate significant improvements in income distribution and a notable reduction in inflation.

Keywords: Stock-Flow Consistent Model; UK economy; post-COVID inflation; income inequality (search for similar items in EconPapers)
JEL-codes: E12 E17 (search for similar items in EconPapers)
Pages: 34
Date: 2025-08
New Economics Papers: this item is included in nep-cba, nep-mon and nep-pke
References: Add references at CitEc
Citations:

Downloads: (external link)
https://postkeynesian.net/media/working-papers/PKWP2519.pdf First version, 2025 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pke:wpaper:pkwp2519

Access Statistics for this paper

More papers in Working Papers from Post Keynesian Economics Society (PKES) Contact information at EDIRC.
Bibliographic data for series maintained by Jo Michell ().