Fiscal policy in a stock-flow consistent (SFC) model
AbstractThis paper deploys a simple stock-flow consistent (SFC) model in order to examine various contentions regarding fiscal and monetary policy. It follows from the model that if the fiscal stance is not set in the appropriate fashionâthat is, at a well-defined level and growth rateâthen full employment and low inflation will not be achieved in a sustainable way. We also show that fiscal policy on its own could achieve both full employment and a target rate of inflation. Finally, we arrive at two unconventional conclusions: (1) that an economy (described within an SFC framework) with a real rate of interest net of taxes that exceeds the real growth rate will not generate explosive interest flows, even when the government is not targeting primary surpluses, and (2) that it cannot be assumed that a debtor country requires a trade surplus if interest payments on debt are not to explode.
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Bibliographic InfoArticle provided by M.E. Sharpe, Inc. in its journal Journal of Post Keynesian Economics.
Volume (Year): 30 (2007)
Issue (Month): 1 (October)
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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=109348
current account deficit; fiscal policy; new consensus; public debt; stock-flow consistency;
Other versions of this item:
- Wynne Godley & Marc Lavoie, 2007. "Fiscal Policy in a Stock-Flow Consistent (SFC) Model," Economics Working Paper Archive wp_494, Levy Economics Institute, The.
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