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

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  • Bill Martin

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.

Suggested Citation

  • Bill Martin, 2008. "Fiscal policy in a stock-flow consistent model: a comment," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 30(4), pages 649-668, July.
    • Handle: RePEc:mes:postke:v:30:y:2008:i:4:p:649-668
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    Citations

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    Cited by:

    1. Scott T. Fullwiler, 2016. "The Debt Ratio and Sustainable Macroeconomic Policy," World Economic Review, World Economics Association, vol. 2016(7), pages 12-42, July.
    2. Muriel Pucci & Bruno Tinel, 2010. "Réductions d'impôts et dette publique : un lien à ne pas occulter," Documents de travail du Centre d'Economie de la Sorbonne 10085, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    3. Yannis Dafermos, 2018. "Debt cycles, instability and fiscal rules: a Godley–Minsky synthesis," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 42(5), pages 1277-1313.
    4. Eckhard Hein, 2018. "Autonomous government expenditure growth, deficits, debt, and distribution in a neo-Kaleckian growth model," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 41(2), pages 316-338, April.
    5. Pedro Leão, 2013. "The Effect of Government Spending on the Debt-to-GDP Ratio: Some Keynesian Arithmetic," Metroeconomica, Wiley Blackwell, vol. 64(3), pages 448-465, July.
    6. Yannis Dafermos, 2015. "Debt cycles, instability and fiscal rules: a Godley-Minsky model," Working Papers 20151509, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.

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