Godley economics (!!) Part II illustrates work conducted by and with Wynne Godley: Monetary...
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![Page 1: Godley economics (!!) Part II illustrates work conducted by and with Wynne Godley: Monetary Economics: An Integrated Approach to Credit, Money, Income,](https://reader036.fdocuments.net/reader036/viewer/2022082709/56649ce65503460f949b3c23/html5/thumbnails/1.jpg)
Godley economics (!!)
Part II illustrates work conducted by and with Wynne Godley:
Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth.
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Origins
Two strands of research linking stocks and flows:
Godley and Cripps (1982) at Cambridge, Cambridge Economic Policy Group, New Cambridge school (1970’s). Tobin (1982) and his associates at Yale, the ‘pitfalls approach’ (1969) the New Haven school.
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Revival New impetus with the more recent works of
Godley (1996, 1999), which combines elements of the two strands, and adds behavioural equations conducive to simulations.
(see Dos Santos (2002) for a general assessment).
New School University (Lance Taylor, A. Shaikh, W. Semmler).
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General features Tobin (1982, Nobel Lecture) Models ought to track stocks; Models should have several assets
and rates of return; Models include financial and monetary
operations Models include the sectoral budget
constraints and the adding-up constraints in
portfolio equations
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Other key features There cannot be any black holes. “The fact that money stocks and flows must
satisfy accounting identities in individual budgets and in an economy as a whole provides a fundamental law of macroeconomics analogous to the principle of conservation of energy in physics” (Godley and Cripps 1983).
There are intrinsic dynamics, Turnovsky (1977)
There are lag dynamics, to avoid telescoping time (Hicks, 1965)
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Simulations
Because the models easily run up a high number of equations, the simulation method is put to the forefront.
Hopefully, it can resolve some controversies among theorists.
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Procedural rationality Agents react to disequilibria on the basis of partial
adjustment functions. There is no need nor no room for the rational
expectations hypothesis. Still agents in our models are rational: they display a
kind of procedural rationality, sometimes misleadingly called weak rationality or bounded rationality, or more appropriately named reasonable rationality.
They react to new information. They entertain norms They may revise these norms
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Models are Kaleckian or Kaldorian They are demand-led Imperfect competition, Imperfect information, Markup pricing, Fixed technical coefficients, The relevance of income distribution, The role of capacity utilization and corporate retained
profits, the importance of lags and time, Long run trends being conceived as “a slowly
changing component of a chain of short period situations” (Kalecki, 1971: 165)
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Godley models are PK models Emphasis on monetary economics The monetary side is integrated to the real
side There is a link with the monetary circuit Closures are based on the notion of
endogenous money Disequilibria can be studied There are inflation-accounted measures of
the main variable
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Three tools for stock-flow consistency
A balance sheet matrix A transactions flow matrix A revaluation (or reconciliation)
account
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The quadruple entry principle
« Because moneyflows transactions involve two transactors, the social accounting approach to moneyflows rests not on a double-entry system but on a quadruple-entry system » (Copeland, 1949)
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Households Production firms Banks
Current A. Capital A. Capital A.
Consumption
Investment
Wages
loans + Lf - L 0
deposits - Mf + M 0
0 0 0
First step of the monetary circuit with private money
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Households Production firms Banks
Current A. Capital A. Capital A.
Consumption
Investment + I - I 0
Wages + WB - WB 0
loans + Lf - L 0
deposits - Mh + M 0
0 0 0 0 0
The second step of the monetary circuit with private money
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Hholds Production firms
Banks Governt Centralbank
Current Capital Capital
Govt. exp.
Income[GDP]
change in cash
- Hg + H 0
change indeposits
0
change inbills
+ B - Bcb 0
0 0 0
The first step of government expenditures financed by the central bank
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Hholds Productionfirms
Banks Govt Centralbank
Govt.exp.
+ G - G 0
Income[GDP]
Changein cash
- Hb + H 0
Changeindeposits
- Mf + M 0
Changein bills
+ B - Bcb 0
0 0 0 0 0
The second step of government expenditures financed by the central bank
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Productionfirms
Banks Govt Centralbank
Current Capital Capital
Govt. exp.
Income [GDP]
Change in cash
Change indeposits
+ M - Mg 0
Change inbank loans
- L + Lg 0
Change incentral bankadvances
0 0 0
First step in government expenditures in overdraft system