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.


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.


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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.