DSGE Wars (Again)

There's been a small revival in the arguments around Dynamic Stochastic General Equilibrium (DSGE) models. My thinking on these models has evolved somewhat; I think they are not particularly interesting, but the arguments over there use are somewhat misplaced.

(I am getting ready to head out to the Modern Monetary Theory conference in Kansas City, so my comments here are brief.)

Python Book Nearly Done

Just a quick update. Although I wanted to revert to two articles a week, I got tied up with projects, and I may stick with one article a week for a bit longer. I am getting ready to present at the MMT conference, and I am trying to finish off the guide to the sfc_models stock-flow consistent models package.

 I have released version 1.0 of sfc_models; it is similar to the previous development versions, but is a major jump versus the last production version. The idea is that the guide is calibrated against version 1.0 of the module, and users could download that version if they want the code examples within the book to be guaranteed to work.

Book Review: A Random Physicist Takes On Economics

Dr. Jason Smith (publisher of the Information Transfer Economics website) has recently released A Random Physicist Takes On Economics. It is a relatively brief, non-technical discussion of empirical approaches to economics, and is highly critical of mainstream economic approaches. For many of my readers (many of whom also read Jason Smith's work), the criticisms of economics will be an interesting read. They are certainly novel, as they are coming from an outsider's perspective. However, I have some reservations about his approach (which is only briefly summarised in this book).

Calculating An Initial Steady State In sfc_models

One typical task in SFC modelling is examining the effect of a policy change. We assume that a model starts in a steady state at k=0, the policy change hits at some later time, and we then examine the solution. This yields more plausible scenarios than starting with stock variables equal to zero. However, the difficulty with this task is that we need to set the initial conditions of the variables to equal the initial steady state.

This article is an unedited excerpt from my manuscript on stock-flow consistent (SFC) modelling in Python. It describes how the sfc_models framework determines an initial steady state for a model. For readers who are unfamiliar with the notion of the steady state within the context of SFC models, I have this primer on the concepts of steady state and equilibrium.

Expect More Of The Same On The Inflation Front

Although I do not bill myself as a forecaster, my generic inflation forecast has remained remarkably accurate: expect it to stick around 2%, barring a recession. Although this has been the correct forecast for years, it does not match what people want to hear: higher inflation (or deflation!) is around the corner! (This generic forecast is for the United States and Canada, but I will stick to U.S. data for this article.) To a certain extent, the entire social position of mainstream economics is based on their ability to sound very serious about inflation, and just saying that inflation will probably stick around 2% does not sound serious at all. This article is an update on my views on inflation, which obviously have not moved very much.

Implementing Foreign Exchange In sfc_models

The sfc_models package is a Python framework that automatically generates the equations for stock-flow consistent (SFC) models. This article discusses how foreign exchange transactions are represented within the framework. It is an unedited draft section from my upcoming book on sfc_models; some technical details may be harder to follow for readers unfamiliar with the framework. At the end of the article, I discuss the difference in modelling strategy between sfc_models and that used by Godley and Lavoie in their text Monetary Economics.

Primer: Money Neutrality

Note: This article is an excerpt from "Abolish Money (From Economics)! "(chapter 5). The book is available at online bookstores.

Big errors start from smaller ones. In economics, the plausible concepts of money neutrality and the velocity of money have led to many problems. This essay defines these concepts; I discuss the difficulties with them in later sections.