Recent Posts

Wednesday, January 18, 2017

Trade And Growth

Chart: U.S. Trade Balance

This article is a brief discussion of the relationship between growth and trade deficits in the United States. The previous two decades saw a marked deterioration in the U.S. trade balance, as depicted in the chart above. As a result, trade acted as a counter-cyclical brake on growth. One interesting property of the current cycle is that the trade deficit has been relatively stable when compared to that experience.

Sunday, January 15, 2017

Central Banks In SFC Models

Central banks are often a feature of economic models, including stock-flow consistent (SFC) models. The role of the central bank is to supply money, which pays no interest, while the Treasury (fiscal arm of the central government) supplies interest-bearing instruments (typically Treasury bills). However, this level of detail is largely irrelevant to the model outcome; private sector money and treasury bill holdings are determined by the policy rate of interest (which equals the interest rate on Treasury bills), and the central bank operations are forced to conform to the desired portfolio holdings.

Wednesday, January 11, 2017


Even if one is not a fan of President-elect Trump, one must be impressed how he managed to shift expectations to end secular stagnation. With the Zero Lower Bound (ZLB) now dead as a door-nail, it is going to be difficult for mainstream economists to make it look like Dynamic Stochastic General Equilibrium (DSGE) models have something useful to tell us about the real world.

This article first discusses some of the academic theoretical issues around the ZLB, and then jumps to the latest economic squabbling based on Paul Krugman's recent comments.

Sunday, January 8, 2017

The Determination Financial Asset Holdings In SFC Models

This article discusses how I systematically generate the systems of equations that determines financial asset holdings within the Python sfc_models framework for Stock-Flow Consistent (SFC) models. It should be noted that despite the generality of the title, I am only discussing how I attacked the problem (the results of my technique is consistent with the literature that I have studied). The existing literature relies on the derivation of system equations by hand, and so the modelling techniques used by others are less constrained than the algorithmic equation generation I use.

Tuesday, January 3, 2017

Primer: Inflation Versus Rising Prices

One source of complexity in economic discussion is the ambiguity of the term "inflation." The usual definition is that this is the rate of growth of a price index of consumer goods (such as the CPI). However, economists quite often distinguish sustained rises in the price index versus one-time shocks. Unfortunately, it is difficult to determine whether a rise in prices is going to be sustained. For this reason, it is useful to avoid discussing generic inflation, and use more precise terminology.

Wednesday, December 28, 2016

Happy New Year!

Happy New Year to all of my readers! Once again, the JGB market has defied predictions of imminent collapse in 2016, but perhaps Santa Claus will bring presents for suffering JGB bears in 2017.

Wednesday, December 21, 2016

Merry Christmas!

Merry Christmas and a Happy New Year to all of my readers. I would like to thank you for your support.