Macro-Modelling, Default and Money

38 Pages Posted: 3 Jun 2016

See all articles by Charles Goodhart

Charles Goodhart

London School of Economics & Political Science (LSE) - Financial Markets Group

Nikolaos Romanidis

University of Oxford - Said Business School

Dimitrios P. Tsomocos

University of Oxford - Said Business School and St. Edmund Hall

Martin Shubik

Yale University - School of Management; Yale University - Cowles Foundation

Date Written: June 1, 2016

Abstract

Mainstream macro-models have assumed away financial frictions, in particular default. The minimum addition in order to introduce financial intermediaries, money and liquidity into such models is the possibility of default. This, in turn, requires that institutions and price formation mechanisms become a modelled part of the process, a ‘playable game’. Financial systems are not static, nor necessarily reverting to an equilibrium, but evolving processes, subject to institutional control mechanisms themselves subject to socio/political development. Process-oriented models of strategic market games can be translated into consistent stochastic models incorporating default and boundary constraints.

Keywords: Default, Money, Financial Intermediation, Liquidity, Modelling

JEL Classification: A10, C70, D50, E11, E50, G10

Suggested Citation

Goodhart, Charles A.E. and Romanidis, Nikolaos and Tsomocos, Dimitrios P. and Shubik, Martin, Macro-Modelling, Default and Money (June 1, 2016). Saïd Business School WP 2016-18. Available at SSRN: https://ssrn.com/abstract=2788772 or http://dx.doi.org/10.2139/ssrn.2788772

Charles A.E. Goodhart (Contact Author)

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom
0207 955 7555 (Phone)
0207 242 1006 (Fax)

Nikolaos Romanidis

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Dimitrios P. Tsomocos

University of Oxford - Said Business School and St. Edmund Hall ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 1865 288 932 (Phone)
+44 1865 288 805 (Fax)

Martin Shubik

Yale University - School of Management ( email )

Box 208200
New Haven, CT 06520-8200
United States

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States
203-432-3694 (Phone)
203-432-6167 (Fax)

HOME PAGE: http://cowles.econ.yale.edu/P/au/d_shubik.htm

Register to save articles to
your library

Register

Paper statistics

Downloads
147
rank
193,176
Abstract Views
1,005
PlumX Metrics