Solution and Simulation of Large Stock Flow Consistent Monetary Production Models Via the Gauss Seidel Algorithm
34 Pages Posted: 9 Mar 2011
Date Written: December 21, 2010
This paper builds and solves a stock flow consistent model in the tradition of Godley and Lavoie (2007). The goal of this paper is to develop a benchmark model that is both thorough and flexible enough to be applied to modern industrialized economies to aid monetary and fiscal policy decisions. The main difficulty with stock-flow consistent models is the complexity of the models and their solutions. To reduce the complexity of the solution of each model, an algorithm is developed using the Gauss-Seidel method. This algorithm is successful in solving the expansive linear system of equations representing our economy. Given our choice of parameters, our benchmark model achieves a steady state with an inflation rate of 2%, whilst maintaining full employment.
Keywords: Gauss Seidel, Stock Flow Consistent Model, Growth Model
JEL Classification: C63, E27, E47
Suggested Citation: Suggested Citation