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

Author

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  • Stephen Kinsella

    (Department of Economics, University of Limerick)

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 macroeconomies, 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.

Suggested Citation

  • Stephen Kinsella, 2011. "Words to the Wise: Stock Flow Consistent Modeling of Financial Instability," Working Papers 201130, Geary Institute, University College Dublin.
  • Handle: RePEc:ucd:wpaper:201130
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    File URL: http://www.ucd.ie/geary/static/publications/workingpapers/gearywp201130.pdf
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    Keywords

    Instability; finance; stock flow consistent models;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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