Macro-Modelling, Default and Money

Charles Goodhart,Dimitrios Tsomocos & Martin Shubik
Authors registered in the RePEc Author Service: Martin Shubik and Dimitrios Panayotis Tsomocos

FMG Special Papers from Financial Markets Group

Abstract: Mainstream macro-models have assumed away financial frictions, in particular default. The minimum addition in order to introduce financial intermediaries, money and liquidity into such models is the possibility of default. This, in turn, requires that institutions and price formation mechanisms become a modelling part of the process, a ‘playable game’. Financial systems are not static, nor necessarily reverting to an equilibrium, but evolving processes, subject to institutional control mechanisms themselves subject to socio/political development. Process-oriented models of strategic market games can be translated into consistent stochastic models incorporating default and boundary constraints.

Date: 2013
New Economics Papers: this item is included in nep-mon and nep-spo
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Working Paper: Macro-modelling, default and money (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:fmg:fmgsps:sp224

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