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A prototype regional stock‐flow consistent model

Francesco Zezza and Gennaro Zezza

Metroeconomica, 2023, vol. 74, issue 2, 266-287

Abstract: When considering a regional context, most adjusting mechanisms at work in open economy Stock‐Flow Consistent models—such as exchange rate movements, or changes in interest on public debt—are not present, as they are in control of “external” authorities. So, how does a regional system with “current account” imbalances adjust? To answer this question, we adapt the framework suggested in Godley‐Lavoie (2007a) to consider two regions that share the same monetary, fiscal, and exchange rate policies. The model—loosely calibrated over Italian data, with the introduction of a fragmented labour market—replicates some key features of the Italian economy, and sheds light on the interactions between financial and real markets in regional economies.

Date: 2023
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