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Thursday, March 23, 2017

Video: Gold Standard And Austerity

Video explaining how austerity works in a Gold Standard model, as described in my previous post.


  1. That is very cool stuff. One question- the south country government cuts its spending in your demonstration, why is that? Is it because they realize they will run out of gold under the new increased propensity to import and they think that is the only mechanism they can use to avoid that? Is a devaluation of their currency as far as gold another method to deal with it? Or is that outside the scope of the model?

    1. That was one method to deal with the gold drain; it's the easiest to model right now.

      The other methods that could be used:

      - devalue versus gold. This was viewed as a last resort mechanism. To properly model it, I would need to model inflation (which is not being done yet). Without inflation being modelled, it looks like there is no cost to devaluation.
      - Allow foreign holding of domestic financial assets, and then use interest rate hikes to draw in inflows. This is not too hard to do, but it would require a few extensions.
      - Increasing tariffs (protectionism) is another strategy; once again it would probably require a closer modelling of inflation.

      Godley and Lavoie's text (Monetary Economics) has a longer discussion of the options. I will write this example up soon, and give an overview of the other options.

      Although I would like to add all kinds of new features, I need to lock down a set of solid features that I can then write up. In order to get other researchers to use the package, they will have to get an idea of how it works. The code is clean, but it would easily be over the head of a non-Python programmer. That's why I want to get the book/report finished relatively quickly, before attacking new feature sets.


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