Post-Keynesian Economics
Both Modern Monetary Theory and Stock-Flow Consistent models can be grouped within a broad tent of economic thought that is known as post-Keynesian Economics. I will usually drill down to more specific schools of thought, but it can be useful to have a bigger picture.- My review of Marc Lavoie's Post Keynesian Economics.
Stock-Flow Consistent Models -- Software
- My Python sfc_models package on GitHub. Installed package available on the PyPi package index: https://pypi.python.org/pypi/sfc_models/; you can use "pip install sfc_models" on the command line to install. (Under construction.)
- My programming site (under construction).
- The PKSFC package for the R programming language.
- The sfc-models.net software repository: http://models.sfc-models.net/
Stock-Flow Consistent Models -- Theory
- What Are Stock-Flow Consistent Models?
- Primer: Understanding Stock-Flow Norms.
- Finding the Solution of a Simple SFC Model
- Solution Techniques For SFC Models
Stock-Flow Consistent Models -- Application
- When Should The Budget Be Balanced?
- Why Interest Payments Do Not Pose Fiscal Risk
- Why A Hard Debt Limit Is A Very Bad Idea
- Fiscal Policy Trade-Offs: Interest Costs
- Modelling Fiscal Expectations In SFC Models
- Supply Creates Its Own Demand: Government Bond Edition
- Using Stock-Flow Norms To Explain Secular Stagnation , Part 2
- Why Japan's current account deficit has not caused a collapse.
External Sites
Books
- Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth, by Godley and Lavoie
, (Amazon affiliate link) is an excellent introduction to the topic.
- The Stock-Flow Consistent Approach: Selected Writings of Wynne Godley
(Amazon affiliate link). This is a set of articles by Wynne Godley. Gives examples of application to contemporary issues.
Modern Monetary Theory
Analysis of government financial operations are an extremely important part of MMT, my articles on government financial operations are grouped in this (sub-)theme article.
- A Quick Chartalism Primer
- Analysing bonds as a reserve drain.
- Why rich countries should float their currencies - a discussion of the "external constraint".
- (Don't Fear) The Taper - why Quantitative Easing is ineffective.
- Understanding Central Bank Control of Interest Rates
- Consequences of a Basic Income Guarantee - contrasted to MMT's Job Guarantee.
- MMT not "Modern" -- cleaning up misconceptions about the name.
External Sites:
- Mike Norman Economics. MMT article link hub.
- Eric Tymoigne's free book on money and banking
- Warren Mosler's site. (Has links to free electronic copies of some of his books.)
- Bill Mitchell's site.
- Alex Little's MMT Bibliography
Books
My eReport: Understanding Government Finance is an introduction to governmental monetary operations. It could be viewed as an introduction to MMT, although it does not attempt to cover all of the areas of interest in MMT. It is available at online retailers; the product page is here.
- Soft Currency Economics II: The Origin of Modern Monetary Theory (MMT - Modern Monetary Theory) (Volume 1)
- The 7 Deadly Innocent Frauds of Economic Policy
(affiliate link) by Warren Mosler again. (Once again, pdf may be available on his website.)
-
Understanding Modern Money:The Key to Full Employment and Price Stability
(affiliate link) by Randall Wray. A historically-oriented introduction to MMT.
-
Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems
(affiliate link) by Randall Wray. I will note that I have not read this; I base my recommendation based on his other writings.
- Diagrams & Dollars: Modern Money Illustrated
(affiliate link) by J.D. Alt. A graphical, easy-to-understand introduction to MMT in an inexpensive ebook format.
(c) Brian Romanchuk 2013-2015
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ReplyDeleteHi,
ReplyDeleteI've enjoyed very much going through your articles. I was wondering if you'd write one on Fed issued reserves.
Here's the main questions I have:
1) Can banks ever convert reserves into cash? For instance, if they can purchase T Bonds with reserves, then sell the bonds, then haven't they converted reserves into cash?
2) Can they leverage non-cash reserves?
3) Since banks are now doing shadow bank operations (if that's how to say it), are shadow banks now back stopped by the CB?
Anyway, I'm still really hung up on the role of reserves, and exactly how they work and what banks can and can not do with them.
Thanks.
I am working on a book, and I have some background material on the banking system. I could look and see whether some of that could be converted into a blog post.
DeleteReserves are just deposits at the central bank. They can be broken up into required reserves (what are needed to meet reserve requirements), and excess reserves. Pre-QE, excess reserves were as close to zero as possible.
Banks can transfer reserves amongst themselves, but they cannot change the amount - unless they convert them to notes and coin (dollar bills). In that sense, reserves get converted into "cash".
1. If they buy a TBond, they will transfer their excess reserves to the seller's bank. If they sell the bond, they will just get a transfer back of reserves. (I am not an expert on the U.S. banking system plumbing, so the exact details may not follow this description.)
2. Reserves are part of bank's liquidity buffer, and so they are there to support the leverage on the rest of the balance sheet. They could not borrow directly against reserves, but the reserves allow them to borrow against other assets. (It is possible to borrow against other securities in the repo market.)
3. The backstop was not what the regulators wanted, but that's what happened in practice. On paper, the shadow banking activities of the banks were supposed to be off balance sheet vehicles, ("conduits", "SIVs", and other lingo like that) that were allegedly not backed by the commercial bank (which is what is "backed" by the Fed's lender-of-last-resort activities).
But what we discovered during the crisis is that the banks were not willing or able to walk away from those off balance sheet entities, As a result, the Fed and other central banks ended up bailing out a lot of those vehicles indirectly. But not all of the shadow banking system was covered, and so quite a few things blew sky high.
"Shadow banking" includes a pretty wide range of activities, including some relatively transparent markets like the bond market, and the commercial paper markets.
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ReplyDeleteI'm not convinced with how you've grouped SFCA and MMT. SFCA is a methodology whilst MMT is a theory. SFCA could be used to exercise the logic of causation being proposed by any economic theory, including MMT. Infact I found your site in my search for SFCA models based on MMT.
ReplyDeleteThe wording here is a bit questionable. I wrote it six years ago, and it’s heavily out-of-date. I’m actually surprised you found it..
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