If one affirms that money is endogenous, new private and public debt are new spending power and human beings often act as irrational and not well-informed, then all kind of non-equilibrium states are possible, such as placing astronomical size of off-balance sheet liabilities for CDS and other gambling instruments. Especially, when one party, the public state, plays one role in the game (especially changes in public debt) and an other role by changing and enforcing the rules of the game for everybody.
Would it be more useful for theory to give plausible explanations for 90% of the time instead of being upside-down deadwrong 100% of the time with loanable funds model? E.g. does quantum physics give useful insights even though they know 'everything' except small stuff, big stuff, cold stuff, hot stuff, fast stuff, slow stuff, heavy stuff, dark stuff and turbulence?
As I hinted, I am not complaining too loudly about the lack of banking systems in old school DSGE macro models (newer models attempted to add them). If we ignore the micro foundations story and just say: we are attempting to fit some macro variables, the approach is defensible. And “loanable funds”/“endogenous money” are not really that much of an issue: interest rates on government debt is set by an interest rate rule (what difference does loanable funds make?) and there is no bank money, so the whole exo-endo-money bit is not that pressing.
The problem of the lack of a financial system is that there is a private sector “accelerator” within the system - and it is not constant.
Did you read Steve Keen, The New Economics: A Manifesto, chapter two: Money Matters?
It contains some systems dynamics models of bank and government money, credit. Different sectors of the economy can be added to create a more complex model. The benefit of engineering based systems dynamics modeling is that it shows oscillating behavior including the "great moderation" and the following great recession.
The mainstream is not totally blind. I was amused to find that the Reserve Bank of Australia (RBA) has attempted to fit a banking sector into MARTIN (their macro model of Australia). It's a dog's breakfast, like mainstream macro models are, and it is hilarious that they managed to do this without referencing Minsky (ideological blinkers); but at least someone at the RBA is aware of the need for a banking sector in their macro model! Check it out here: https://www.rba.gov.au/publications/rdp/2022/2022-01/introduction.html
There was a burst of activity in the area of adding a financial sector to neoclassical macro in the 2010s. It was possible to tell stories with them, but the framework also skipped over a lot of important stuff. Crises were “random” events - which has issues in terms of offering policy insights.
I would call the RBA 's effort "half-arsed". They endogenously model the amplifying effect of banks withdrawing credit, but completely ignore the accelerating effect of credit creation - revealing that their underlying banking model is wrong, without explicitly stating what it is - assumed "knowledge"!
So, ten years to build-in half of a fact, and because the underlying model is wrong it's still useless. *sigh*
I once started to build a stock flow consistent Godley type model to use as simulation trainining in the Strategic ALM courses I taught. It got pretty complex and decided it would be too much to run in a two day professional course. But was a fun intellectual challenge!
Not in touch no. My argument is that all mathematical models face difficulty. As I wrote, this article was a draft of introduction section to a chapter, laying out themes. The meat of the arguments come later.
If one affirms that money is endogenous, new private and public debt are new spending power and human beings often act as irrational and not well-informed, then all kind of non-equilibrium states are possible, such as placing astronomical size of off-balance sheet liabilities for CDS and other gambling instruments. Especially, when one party, the public state, plays one role in the game (especially changes in public debt) and an other role by changing and enforcing the rules of the game for everybody.
Would it be more useful for theory to give plausible explanations for 90% of the time instead of being upside-down deadwrong 100% of the time with loanable funds model? E.g. does quantum physics give useful insights even though they know 'everything' except small stuff, big stuff, cold stuff, hot stuff, fast stuff, slow stuff, heavy stuff, dark stuff and turbulence?
As I hinted, I am not complaining too loudly about the lack of banking systems in old school DSGE macro models (newer models attempted to add them). If we ignore the micro foundations story and just say: we are attempting to fit some macro variables, the approach is defensible. And “loanable funds”/“endogenous money” are not really that much of an issue: interest rates on government debt is set by an interest rate rule (what difference does loanable funds make?) and there is no bank money, so the whole exo-endo-money bit is not that pressing.
The problem of the lack of a financial system is that there is a private sector “accelerator” within the system - and it is not constant.
Did you read Steve Keen, The New Economics: A Manifesto, chapter two: Money Matters?
It contains some systems dynamics models of bank and government money, credit. Different sectors of the economy can be added to create a more complex model. The benefit of engineering based systems dynamics modeling is that it shows oscillating behavior including the "great moderation" and the following great recession.
I read it some time ago. I had concerns with Keen’s and SFC models as well - I think *any* mathematical model is going to run into problems.
The mainstream is not totally blind. I was amused to find that the Reserve Bank of Australia (RBA) has attempted to fit a banking sector into MARTIN (their macro model of Australia). It's a dog's breakfast, like mainstream macro models are, and it is hilarious that they managed to do this without referencing Minsky (ideological blinkers); but at least someone at the RBA is aware of the need for a banking sector in their macro model! Check it out here: https://www.rba.gov.au/publications/rdp/2022/2022-01/introduction.html
There was a burst of activity in the area of adding a financial sector to neoclassical macro in the 2010s. It was possible to tell stories with them, but the framework also skipped over a lot of important stuff. Crises were “random” events - which has issues in terms of offering policy insights.
I would call the RBA 's effort "half-arsed". They endogenously model the amplifying effect of banks withdrawing credit, but completely ignore the accelerating effect of credit creation - revealing that their underlying banking model is wrong, without explicitly stating what it is - assumed "knowledge"!
So, ten years to build-in half of a fact, and because the underlying model is wrong it's still useless. *sigh*
I once started to build a stock flow consistent Godley type model to use as simulation trainining in the Strategic ALM courses I taught. It got pretty complex and decided it would be too much to run in a two day professional course. But was a fun intellectual challenge!
Suppose you are already in contact with Tyrone Keynes. If you describe your model he could probably rebuild it in Steve Keen's Minsky software.
Not in touch no. My argument is that all mathematical models face difficulty. As I wrote, this article was a draft of introduction section to a chapter, laying out themes. The meat of the arguments come later.