STOCKâ€ FLOW CONSISTENT MACROECONOMIC MODELS: A SURVEY
Michalis Nikiforos and
Journal of Economic Surveys, 2017, vol. 31, issue 5, 1204-1239
The stockâ€ flow consistent (SFC) modelling approach, grounded in the pioneering work of Wynne Godley and James Tobin in the 1970s, has been adopted by a growing number of researchers in macroeconomics, especially after the publication of Monetary Economics by Godley and Lavoie, which provided a general framework for the analysis of whole economic systems, and the recognition that macroeconomic models integrating real markets with flowâ€ ofâ€ funds analysis had been particularly successful in predicting the Great Recession of 2007â€“2009. We introduce the general features of the SFC approach for a closed economy, showing how the core model has been extended to address issues such as financialization and income distribution. We next discuss the implications of the approach for models of open economies and compare the methodologies adopted in developing SFC empirical models for whole countries. We review the contributions where the SFC approach is being adopted as the macroeconomic closure of microeconomic agentâ€ based models, and how the SFC approach is at the core of new research in ecological macroeconomics. Finally, we discuss the appropriateness of the name â€˜SFCâ€™ for the class of models we survey.
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