Towards a reconstruction of macroeconomics using a stock flow consistent (SFC) model

Godley, Wynne (2004-05)

Working Paper

This paper aims to rehabilitate “stock flow consistent” (SFC) macroeconomics as a radical alternative to the neo-classical approach which has dominated the subject during the last thirty years. Commercial banks are reckoned to play a central role in the macroeconomic process because they co-ordinate all the disparate aspirations, expectations and actions of the different sectors and this is one of many ways in which the model deployed here differs, not only from mainstream models, but also from “old fashioned” Keynesian models which have largely become extinct. A comprehensive system of stock and flow accounts, using four sectors and seven financial assets, will be deployed, followed by a narrative description of a theoretical model which can be numerically solved to yield sequences evolving in real time towards steady states. Details of the model’s equations are not disclosed but the paper clearly indicates an alternative methodology, while the simulations lend plausibility to some distinctive conclusions.