Makrelov, Konstantin Arndt, Channing Davies, Rob Harris, Laurence
Year of Publication:
WIDER Working Paper 2018/7
We develop a stock-and-flow-consistent model for South Africa with four financial instruments and detailed balance sheets for the household, government, financial, non-financial, and foreign sectors and the Reserve Bank. Though micro-founded, the model departs significantly from current dynamic stochastic general equilibrium models as it assumes bounded rationality and no Ricardian equivalence. The stock and flow consistency makes it better suited to studying balance sheet dynamics and the real sector/financial sector interaction. In the model, cyclical flow changes affect the long-term real and financial behaviour of institutions through their impact on the respective institutional assets and liabilities stocks.
stock and flow macroeconomic model financial computable general equilibrium