Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/31585
Authors: 
Godley, Wynne
Lavoie, Marc
Year of Publication: 
2007
Series/Report no.: 
Working papers // The Levy Economics Institute 494
Abstract: 
This paper deploys a simple stock-flow consistent (SFC) model in order to examine various contentions regarding fiscal and monetary policy. It follows from the model that if the fiscal stance is not set in the appropriate fashionthat is, at a well-defined level and growth ratethen full employment and low inflation will not be achieved in a sustainable way. We also show that fiscal policy on its own could achieve both full employment and a target rate of inflation. Finally, we arrive at two unconventional conclusions: first, that an economy (described within an SFC framework) with a real rate of interest net of taxes that exceeds the real growth rate will not generate explosive interest flows, even when the government is not targeting primary surpluses; and, second, that it cannot be assumed that a debtor country requires a trade surplus if interest payments on debt are not to explode.
Subjects: 
Stock-Flow Consistency
Fiscal Policy
Public Debt
New Consensus on Monetary Economics
Current Account Deficit
JEL: 
E12
E62
F41
Document Type: 
Working Paper

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