Fiscal policy in a stock-flow consistent model: a comment

Bill Martin

Journal of Post Keynesian Economics, 2008, vol. 30, issue 4, 649-668

Abstract: This comment provides a simple analytical exposition of the model used by Godley and Lavoie (2007a) to argue a case for fiscal stabilization policy. I show that the government-spending stabilization rule they propose ensures budget solvency as long as private-sector saving behavior is stable. If monetary policy is to be actively pursued, a government debt rule is required to avoid instabilities arising from the accumulation of debt interest payments. Godley and Lavoie (2007b) simulate such instabilities but do not propose a solution. I do so and derive optimal policy rules consistent with their model.

Keywords: fiscal policy; fiscal solvency; monetary policy; optimal policy rules; stock-flow consistency (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (7)

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