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A dynamic model of financial balances for the United Kingdom

Author

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  • Burgess, Stephen

    (Bank of England)

  • Burrows, Oliver

    (Bank of England)

  • Godin, Antoine

    (Kingston University)

  • Kinsella, Stephen

    (University of Limerick)

  • Millard, Stephen

    (Bank of England)

Abstract

We construct a new scenario analysis model for the United Kingdom using ONS data from 1987 to the present. The model links decisions about real variables to credit creation in the financial sector and decisions about asset allocation among investors for a wide array of financial assets. We develop, estimate, and calibrate the model from first principles as well as describing the stock-flow coherent database we construct to validate the model. We impose several scenarios on the model to test its usefulness as a medium term scenario analysis tool, including increases in banks’ capital ratios, sudden stops, changes in investment, increases in house prices and fiscal expansions.

Suggested Citation

  • Burgess, Stephen & Burrows, Oliver & Godin, Antoine & Kinsella, Stephen & Millard, Stephen, 2016. "A dynamic model of financial balances for the United Kingdom," Bank of England working papers 614, Bank of England.
    • Handle: RePEc:boe:boeewp:0614
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    References listed on IDEAS

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    2. Muysken, Joan & Bonekamp, Bas & Meijers, Huub, 2017. "Stock-flow consistent data for the Dutch economy, 1995-2015," MERIT Working Papers 2017-045, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    3. Dafermos, Yannis & Nikolaidi, Maria, 2019. "Fiscal policy and ecological sustainability: a post-Keynesian perspective," Greenwich Papers in Political Economy 37777, University of Greenwich, Greenwich Political Economy Research Centre.
    4. Barbieri Hermitte, Riccardo & Cagnazzo, Alberto & Favero, Carlo A. & Felici, Francesco & Macauda, Valeria & Nucci, Francesco & Tegami, Cristian, 2023. "ITFIN: A stock-flow consistent model for the Italian economy," Economic Modelling, Elsevier, vol. 119(C).
    5. Yannis Dafermos & Maria Nikolaidi, 2019. "Fiscal policy and ecological sustainability," FMM Working Paper 52-2019, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    6. Jacob Assa, 2017. "Leveraged Growth: Endogenous Money and Speculative Credit in a Stock-flow Consistent Measure of Output," Working Papers 1727, New School for Social Research, Department of Economics.
    7. Konstantin Makrelov & Rob Davies & Laurence Harris, 2021. "The impact of higher leverage ratios on the South African economy," Studies in Economics and Econometrics, Taylor & Francis Journals, vol. 45(3), pages 184-207, July.
    8. Konstantin Makrelov & Channing Arndt & Rob Davies & Laurence Harris, 2018. "Stock-and-flow-consistent macroeconomic model for South Africa," WIDER Working Paper Series 007, World Institute for Development Economic Research (UNU-WIDER).
    9. Mikael Randrup Byrialsen & Hamid Raza, "undated". "An Empirical Stock-Flow Consistent Macroeconomic Model for Denmark," Economics Working Paper Archive wp_942, Levy Economics Institute.
    10. Christos Pierros, 2020. "A Labor Market-Augmented Empirical Stock-Flow Consistent Model Applied to the Greek Economy," Economics Working Paper Archive wp_949, Levy Economics Institute.
    11. Kinsella, Stephen, 2019. "Visualising economic crises using accounting models," Accounting, Organizations and Society, Elsevier, vol. 75(C), pages 1-16.
    12. Shaun de Jager & Riaan Ehlers & Keabetswe Mojapelo & Pieter Pienaar, 2021. "Shortterm impacts and interaction of macroprudential policy tools," Working Papers 11020, South African Reserve Bank.
    13. Severin Reissl, 2021. "Heterogeneous expectations, forecasting behaviour and policy experiments in a hybrid Agent-based Stock-flow-consistent model," Journal of Evolutionary Economics, Springer, vol. 31(1), pages 251-299, January.
    14. Christos Pierros, 2021. "Assessing the internal devaluation policy implemented in Greece in an empirical stock‐flow consistent model," Metroeconomica, Wiley Blackwell, vol. 72(4), pages 905-943, November.
    15. Mikael Randrup Byrialsen & Hamid Raza, 2022. "Household debt and macroeconomic stability: An empirical stock‐flow consistent model for the Danish economy," Metroeconomica, Wiley Blackwell, vol. 73(1), pages 144-197, February.
    16. Michalis Nikiforos & Gennaro Zezza, 2017. "Stock†Flow Consistent Macroeconomic Models: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1204-1239, December.
    17. Alessandro Caiani & Ermanno Catullo & Mauro Gallegati, 2018. "The effects of fiscal targets in a monetary union: a multi-country agent-based stock flow consistent model," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 27(6), pages 1123-1154.
    18. Robert Rowthorn, 2019. "Keynesian Economics - Back from the Dead? The Godley-Tobin Lecture," Working Papers wp512, Centre for Business Research, University of Cambridge.
    19. Schoder, Christian, 2020. "A Keynesian Dynamic Stochastic Disequilibrium model for business cycle analysis," Economic Modelling, Elsevier, vol. 86(C), pages 117-132.
    20. Sebastian Valdecantos, 2020. "Argentina's (Macroeconomic?) Trap: Some Insights from an Empirical Stock-Flow Consistent Model," Economics Working Paper Archive wp_975, Levy Economics Institute.
    21. Robert-Paul Berben & Ide Kearney & Robert Vermeulen, 2018. "DELFI 2.0, DNB's Macroeconomic Policy Model of the Netherlands," DNB Occasional Studies 1605, Netherlands Central Bank, Research Department.

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    More about this item

    Keywords

    Sectoral balances; flow of funds; macroeconomic modelling;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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