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Tobin LIVES: Integrating evolving credit market architecture into flow of funds based macro-models

John Duca and John Muellbauer ()

No 1581, Working Paper Series from European Central Bank

Abstract: After the global financial crisis, there is greater awareness of the need to understand the interactions between the financial sector and the real economy and hence the potential for financial instability. Data from the financial flow of funds, previously relatively neglected, are now seen as crucial to the data monitoring carried out by central banks. This paper revisits earlier efforts to understand financial-real linkages, such those of Tobin and the Yale School, and proposes a modeling framework for analysing the household flow of funds jointly with consumption. The consumption function incorporates household income, portfolios of assets and debt held at the end of the previous period, credit availability, and asset prices and interest rates. In a general equilibrium setting, these all have to be endogenised and since households make consumption and housing purchase decisions jointly with portfolio decisions, there is much to be gained in modeling a household sub-system of equations. Major evolutionary structural change JEL Classification: B22, E21, E44, E51, G11

Keywords: consumption; credit constraints; finance and the real economy; financial crisis; household portfolios (search for similar items in EconPapers)
Date: 2013-08
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Working Paper: Tobin lives: integrating evolving credit market architecture into flow of funds based macro-models (2013) Downloads
Working Paper: Tobin Lives: Integrating evolving credit market architecture into flow of funds based macro-models (2012) Downloads
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