Stock‐Flow Interactions, Disequilibrium Macroeconomics and the Role of Economic Policy

31 Pages Posted: 20 May 2011

See all articles by Toichiro Asada

Toichiro Asada

Chuo University

Carl Chiarella

University of Technology, Sydney - UTS Business School, Finance Discipline Group

Peter Flaschel

Bielefeld University - Department of Business Administration and Economics

Tarik Mouakil

affiliation not provided to SSRN

Christian Proano

Bielefeld University

Willi Semmler

The New School - Department of Economics; Universitaet Bielefeld; IIASA

Date Written: July 2011

Abstract

This paper presents the ‘KMGT’ (Keynes–Metzler–Goodwin–Tobin) portfolio model and studies its stability properties. The approach to macrodynamic modelling taken here extends the KMG model of Chiarella and Flaschel (2000), focusing in particular on the incorporation of financial markets and policy issues. The original KMG model considered three asset markets (equities, bonds and money) but depicted them in a rudimentary way so that they had little influence on the real side of the model. The only financial market influencing the real side of the economy was the money market (via an LM curve theory of interest). Here Tobin's portfolio choice theory models the demand for each asset in such a way that the total amount of assets that households want to hold equals their net wealth, which is a stock constraint attached to portfolio choice. There is also a flow constraint, that the net amount of assets accumulated (liabilities issued) by one sector must equal its net savings (expenditures). The Tobinian macroeconomic portfolio approach characterizes the potential for financial market instability, focusing on the interconnectedness of all three markets. The paper goes on to study the potential for labour market and fiscal policies to stabilize unstable macroeconomies.

Keywords: Demand drive distributive cycles, Fiscal policy measures, Portfolio choice, Real‐financial market interaction

Suggested Citation

Asada, Toichiro and Chiarella, Carl and Flaschel, Peter and Mouakil, Tarik and Proano, Christian and Semmler, Willi, Stock‐Flow Interactions, Disequilibrium Macroeconomics and the Role of Economic Policy (July 2011). Journal of Economic Surveys, Vol. 25, Issue 3, pp. 569-599, 2011. Available at SSRN: https://ssrn.com/abstract=1844046 or http://dx.doi.org/10.1111/j.1467-6419.2010.00661.x

Toichiro Asada (Contact Author)

Chuo University ( email )

2nd floor Blg 4 Tampa Campus
742-1 Higashinakano, Hachioji
Tokyo 192-03
Japan

Carl Chiarella

University of Technology, Sydney - UTS Business School, Finance Discipline Group ( email )

PO Box 123
Broadway, NSW 2007
Australia
+61 2 9514 7719 (Phone)
+61 2 9514 7711 (Fax)

HOME PAGE: http://www.business.uts.edu.au/finance/

Peter Flaschel

Bielefeld University - Department of Business Administration and Economics ( email )

P.O. Box 100131
D-33501 Bielefeld, NRW 33501
Germany

Tarik Mouakil

affiliation not provided to SSRN

No Address Available

Christian Proano

Bielefeld University ( email )

Universitätsstraße 25
Bielefeld, NRW
Germany

Willi Semmler

The New School - Department of Economics ( email )

65 Fifth Avenue
New York, NY 10003
United States

HOME PAGE: http://www.newschool.edu/nssr/faculty/?id=4e54-6b79-4e41-3d3d

Universitaet Bielefeld ( email )

Universitätsstraße 25
Bielefeld, NRW
Germany

IIASA ( email )

Schlossplatz 1
Laxenburg/Austria, A-2361
Austria

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