Kingston Uni releases mon­e­tar­ily sound fore­cast model of US Econ­omy

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PERG econ­o­mists are devel­op­ing a macro­econo­met­ric model to track the evo­lu­tion of the US econ­omy over the medium term, which is 3–5 years:

The model belongs to the fam­ily of “finan­cial bal­ances mod­els”, an approach pio­neered by Wynne God­ley and col­lab­o­ra­tors at Cam­bridge Uni­ver­sity (UK) and then suc­cess­fully devel­oped by the macro­eco­nom­ics team of the Levy Insti­tute — led by God­ley him­self.

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At its heart, the KFBM (Kingston Finan­cial Bal­ances Model) is char­ac­terised by a set of thor­ough account­ing matri­ces that gather the major stocks and flows of the US econ­omy as well as their links across insti­tu­tional sec­tors. This results in three key strengths of the KFBM:

  • The model and its fore­casts are always con­sis­tent with the iden­tity that the sur­plus of one sec­tor is the deficit of another sec­tor. Thus poten­tially overop­ti­mistic assump­tions about struc­tural adjust­ments in the pri­vate sec­tor, implicit in other mod­els are ruled out.
  • The focus on finan­cial bal­ances allows to spot struc­tural fragili­ties early on. A sec­toral deficit means accu­mu­la­tion of net lia­bil­i­ties, which proves to be unsus­tain­able if the process per­sists long enough.
  • Being able to track the finan­cial bal­ances of the core sec­tors of the econ­omy enables us to eas­ily assess the impli­ca­tions of pub­lic sec­tor spend­ing plans and com­pare it with alter­na­tive sce­nar­ios.

The aim of the model is not to pro­vide short-term eco­nomic growth fore­casts. Instead the model allows to assess the impli­ca­tions of cur­rent eco­nomic trends and shed some light on their sus­tain­abil­ity. Results are pub­lished in eco­nomic reports aimed at the gen­eral pub­lic, at finan­cial prac­ti­tion­ers, at investors in gen­eral and at pol­icy-mak­ers. Reports are pub­lished twice a year.

The model is being devel­oped by the econ­o­mists Javier López Bernardo and Rafael Wildauer.

Conclusion

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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  • John­Smith

    Great that some­one did a good job!!!
    Shock­ing that almost noone did before:

    Mod­els that use the finan­cial bal­ances approach are not so com­mon. To our knowl­edge, the model of the Levy Insti­tute, the model of Gold­man Sachs and the model devel­oped by Casa­dio & Par­adiso are the only ones that fol­low this approach for the US econo
    my.”

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