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Words to the Wise: Stock Flow Consistent Modeling of Financial Instability

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  • Stephen Kinsella
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    Abstract

    The crisis has exposed the failure of economic models to deal sensibly with endogenously generated crises propagating from the financial sectors to the real economy, and back again. The goal of this paper is to review the method of stock flow consistent modeling to highlight areas in which it is deficient. I argue there is a fruitful research agenda in shoring up these deficiencies. The objective of stock flow modeling should be the ability to practically model unstable macro-economies, and in particular their interactions with the financial sector. These models should provide 'Words to the Wise', and until they do, they are just thought experiments.

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    File URL: http://ineteconomics.org/sites/inet.civicactions.net/files/Note-19-Kinsella.pdf
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    Bibliographic Info

    Paper provided by Institute for New Economic Thinking (INET) in its series INET Research Notes with number 19.

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    Date of creation: 05 Nov 2011
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    Handle: RePEc:thk:rnotes:19

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    1. Amendola, Mario & Gaffard, Jean-Luc, 1998. "Out of Equilibrium," OUP Catalogue, Oxford University Press, number 9780198293804.
    2. Frank Smets & Raf Wouters, 2007. "Shocks and Frictions in US Business Cycles : a Bayesian DSGE Approach," Working Paper Research 109, National Bank of Belgium.
    3. Lance Taylor, 2008. "A foxy hedgehog: Wynne Godley and macroeconomic modelling," Cambridge Journal of Economics, Oxford University Press, vol. 32(4), pages 639-663, July.
    4. Stephen Kinsella & Matthias Greiff & Edward J Nell, 2011. "Income Distribution in a Stock-Flow Consistent Model with Education and Technological Change," Eastern Economic Journal, Palgrave Macmillan, vol. 37(1), pages 134-149.
    5. Leanne J Ussher, 2008. "A Speculative Futures Market with Zero-Intelligence," Eastern Economic Journal, Palgrave Macmillan, vol. 34(4), pages 518-549.
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