Visualising Stock Flow Consistent Models as Directed Acyclic Graphs

Abstract

We show how every stock flow consistent model of the macroeconomy can be represented as a directed acyclic graph. The advantages of representing the model in this way include graphical clarity, causal inference, and model specification. We provide many examples implemented with a new software package.

In this paper we rigorously show that for every stock flow consistent macroeconomic model there is a corresponding directed acyclic graph which is unique. This is achieved by constructing the graphical representation of the stock flow consistent model and using graph theoretical techniques to decompose the graph into an acyclic graph. We illustrate the theory with an example, and provide details of a computational package that gives the directed acyclic graph representation of any stock flow consistent model.

Keywords: tock flow consistent models, directed graphs, macroeconomic modeling

JEL Classification: E01, E17, E12, E17