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  • C. Bruun/C. Heyn-Johnsen: Contributions Towards A Framework For Understanding Financial Crises

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    thewolf37
    165 Ansichten31 Seiten
    Bruun and Heyn-Johnsen offer one possible solution to the "paradox of monetary profits" that results from basic macroeconomic accounting identities: if one person's financial asset always equals another person's financial liabilities, all financial assets and liabilities within a closed economy will always add up to zero. So, the economy as a whole cannot make any monetary profits, only real profits. So macroeconomically, finance is a zero-sum-game; macroeconomic profits - net profits for the whole economy - can only come from changes in value of the whole economy's real assets. This, then, shifts the focus from finance to patterns of how creditors and debtors value real capital in relationship to expected future income streams. These are the (subjective) acts through which people cause business cycles and financial booms and crises: during a credit expansion phase, real assets will appreciate because creditors as well as debtors expect higher future income streams. This in turn improves creditworthiness, which leads to another round of even higher amounts of credit. This is a self-accelerating process, a feedback loop that leads to a so called boom or "credit bubble". If for some reason income expectations fall back, credit expansion comes to a halt. The process of rising incomes and appreciation of real capital stops. If income expectations now fall even more, a rapid bust can occur. So it is the connection between credit, income expectations and valuing real assets used as collateral for credit that drives credit booms and busts, business cycles, and financial booms and crises. This is a much needed contribution, as similar approaches such as Wolfgang Stützel’s Mechanics of Balances or Randall Wrays Modern Monetary Theory so far have been focusing on the accounting part of macroeconomics while leaving out the impact of expectations on valuing real assets - the "reflexive connection between credit and collateral" (George Soros). Macro accounting models are a necessary start withouth which reality based macroeconomics will achieve nothing. But it is not everything: the second crucial ingredient in the making of business cycles, booms and busts, and crises, are the subjective acts of valuation of real capital creditors and debtors engage in before any credit contract is made. And the result of that act can and will change before it matures, of course: how else could liabilities that were "good" when they were contracted turn "bad" during a financial crisis? This is what George Soros means when he talks about "reflexivity" and the "reflexive connection between credit and collateral" - and it is a missing link in explaining crises that needs to be incorporated into the accounting approach for it to become a realistic model of the most important typical macroeconomic processes - booms and recessions, or the business cycle. Another solution to the problem of monetary profits being impossible for the "capitalists" as a whole would be that if the private sector as a whole wants to accumulate financial assets, some other sector of the economy must accumulate the same amount of debt. In a closed economy, this can only be the public sector. In other words, it is the government's debt that allows the private sector (as a whole) to generate monetary profits. As the government, in contrast with private businesses, does not have to act pro-cyclically in creating credit, it can use its ability to create credit counter-cyclically to avoid rapid busts (by acting as borrower of last resort); or its ability to destroy credit (by raising taxes) to avoid building big credit bubbles. Both objectives are achieved through monitoring the price level of real assets and aiming at a fairly stable price level. This is the theoretical foundation for the macroeconomic goal of price stability that all central banks strive for. Governments should strive for it as well and cooperate with their central banks in this

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    Bruun and Heyn-Johnsen offer one possible solution to the "paradox of monetary profits" that results from basic macroeconomic accounting identities: if one person's financial asset always equals another person's financial liabilities, all financial assets and liabilities within a closed economy will always add up to zero. So, the economy as a whole cannot make any monetary profits, only real profits. So macroeconomically, finance is a zero-sum-game; macroeconomic profits - net profits for the whole economy - can only come from changes in value of the whole economy's real assets. This, then, shifts the focus from finance to patterns of how creditors and debtors value real capital in relationship to expected future income streams. These are the (subjective) acts through which people cause business cycles and financial booms and crises: during a credit expansion phase, real assets will appreciate because creditors as well as debtors expect higher future income streams. This in turn improves creditworthiness, which leads to another round of even higher amounts of credit. This is a self-accelerating process, a feedback loop that leads to a so called boom or "credit bubble". If for some reason income expectations fall back, credit expansion comes to a halt. The process of rising incomes and appreciation of real capital stops. If income expectations now fall even more, a rapid bust can occur. So it is the connection between credit, income expectations and valuing real assets used as collateral for credit that drives credit booms and busts, business cycles, and financial booms and crises. This is a much needed contribution, as similar approaches such as Wolfgang Stützel’s Mechanics of Balances or Randall Wrays Modern Monetary Theory so far have been focusing on the accounting part of macroeconomics while leaving out the impact of expectations on valuing real assets - the "reflexive connection between credit and collateral" (George Soros). Macro accounting models are a necessary start withouth which reality based macroeconomics will achieve nothing. But it is not everything: the second crucial ingredient in the making of business cycles, booms and busts, and crises, are the subjective acts of valuation of real capital creditors and debtors engage in before any credit contract is made. And the result of that act can and will change before it matures, of course: how else could liabilities that were "good" when they were contracted turn "bad" during a financial crisis? This is what George Soros means when he talks about "reflexivity" and the "reflexive connection between credit and collateral" - and it is a missing link in explaining crises that needs to be incorporated into the accounting approach for it to become a realistic model of the most important typical macroeconomic processes - booms and recessions, or the business cycle. Another solution to the problem of monetary profits being impossible for the "capitalists" as a whole would be that if the private sector as a whole wants to accumulate financial assets, some other sector of the economy must accumulate the same amount of debt. In a closed economy, this can only be the public sector. In other words, it is the government's debt that allows the private sector (as a whole) to generate monetary profits. As the government, in contrast with private businesses, does not have to act pro-cyclically in creating credit, it can use its ability to create credit counter-cyclically to avoid rapid busts (by acting as borrower of last resort); or its ability to destroy credit (by raising taxes) to avoid building big credit bubbles. Both objectives are achieved through monitoring the price level of real assets and aiming at a fairly stable price level. This is the theoretical foundation for the macroeconomic goal of price stability that all central banks strive for. Governments should strive for it as well and cooperate with their central banks in this

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    Attribution Non-Commercial (BY-NC)
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    165 Ansichten31 Seiten

    C. Bruun/C. Heyn-Johnsen: Contributions Towards A Framework For Understanding Financial Crises

    Hochgeladen von

    thewolf37
    Bruun and Heyn-Johnsen offer one possible solution to the "paradox of monetary profits" that results from basic macroeconomic accounting identities: if one person's financial asset always equals another person's financial liabilities, all financial assets and liabilities within a closed economy will always add up to zero. So, the economy as a whole cannot make any monetary profits, only real profits. So macroeconomically, finance is a zero-sum-game; macroeconomic profits - net profits for the whole economy - can only come from changes in value of the whole economy's real assets. This, then, shifts the focus from finance to patterns of how creditors and debtors value real capital in relationship to expected future income streams. These are the (subjective) acts through which people cause business cycles and financial booms and crises: during a credit expansion phase, real assets will appreciate because creditors as well as debtors expect higher future income streams. This in turn improves creditworthiness, which leads to another round of even higher amounts of credit. This is a self-accelerating process, a feedback loop that leads to a so called boom or "credit bubble". If for some reason income expectations fall back, credit expansion comes to a halt. The process of rising incomes and appreciation of real capital stops. If income expectations now fall even more, a rapid bust can occur. So it is the connection between credit, income expectations and valuing real assets used as collateral for credit that drives credit booms and busts, business cycles, and financial booms and crises. This is a much needed contribution, as similar approaches such as Wolfgang Stützel’s Mechanics of Balances or Randall Wrays Modern Monetary Theory so far have been focusing on the accounting part of macroeconomics while leaving out the impact of expectations on valuing real assets - the "reflexive connection between credit and collateral" (George Soros). Macro accounting models are a necessary start withouth which reality based macroeconomics will achieve nothing. But it is not everything: the second crucial ingredient in the making of business cycles, booms and busts, and crises, are the subjective acts of valuation of real capital creditors and debtors engage in before any credit contract is made. And the result of that act can and will change before it matures, of course: how else could liabilities that were "good" when they were contracted turn "bad" during a financial crisis? This is what George Soros means when he talks about "reflexivity" and the "reflexive connection between credit and collateral" - and it is a missing link in explaining crises that needs to be incorporated into the accounting approach for it to become a realistic model of the most important typical macroeconomic processes - booms and recessions, or the business cycle. Another solution to the problem of monetary profits being impossible for the "capitalists" as a whole would be that if the private sector as a whole wants to accumulate financial assets, some other sector of the economy must accumulate the same amount of debt. In a closed economy, this can only be the public sector. In other words, it is the government's debt that allows the private sector (as a whole) to generate monetary profits. As the government, in contrast with private businesses, does not have to act pro-cyclically in creating credit, it can use its ability to create credit counter-cyclically to avoid rapid busts (by acting as borrower of last resort); or its ability to destroy credit (by raising taxes) to avoid building big credit bubbles. Both objectives are achieved through monitoring the price level of real assets and aiming at a fairly stable price level. This is the theoretical foundation for the macroeconomic goal of price stability that all central banks strive for. Governments should strive for it as well and cooperate with their central banks in this

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Als PDF, TXT herunterladen oder online auf Scribd lesen
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    von 31

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index

    Contributions Towards a Framework for Understanding Financial Crisis


    Presentation at MAFIN09, Reykjavik

    The Logical Impossibility of Monetary Prots Marx Keynes stock-ow consistent models A Heuristical Solution?

    Carsten Heyn-Johnsen and Charlotte Bruun


    Department of Economics, Politics and Public Administration Aalborg University, Denmark

    An agent-based model founded on the suggested framework

    September 3-5th, 2009

    Index

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index The Logical Impossibility of Monetary Prots

    The Logical Impossibility of Monetary Prots


    Marx Keynes stock-ow consistent modelling

    Marx Keynes stock-ow consistent models A Heuristical Solution? An agent-based model founded on the suggested framework

    A Heuristical Solution? An Agent-based model founded on the suggested framework

    Macroaccounting of Monetary Production

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index The Logical Impossibility of Monetary Prots Marx

    Without Connectivity of real and nancial spheres, nancial crisis only have casino impact!

    Keynes stock-ow consistent models

    M-C-M
    M - C monetary nancing of real production of commodities, primo. C - M monetary realisation of the real product, ultimo.

    A Heuristical Solution? An agent-based model founded on the suggested framework

    Marx
    The produced surplus value in commodity form has to be realised in money.

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index The Logical Impossibility of Monetary Prots Marx Keynes stock-ow consistent models

    M - C - C - M
    The class of capitalists can not extract from the circulation, what has not previously been thrown in.) (K. Marx: Das Kapital, vol.2, 2.sec., chapt. 17) In fact, as paradoxical as it looks immediately , the class of capitalists themselves throws into circulation the money, that serves the realisation of the surplus-value embedded in the commodities.(ibid.) t - turnover of M surplus value = t M BUT no simultaneous realization of the surplus. A logical timetrick!

    A Heuristical Solution? An agent-based model founded on the suggested framework

    Marx Conclusion

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index The Logical Impossibility of Monetary Prots Marx Keynes stock-ow consistent models A Heuristical Solution? An agent-based model founded on the suggested framework

    But regarding the whole class of capitalists the sentence, that they themselves have to throw the money for realising their surplusvalue (respectively also for circulation their capital, constant and variable) appears not only not paradoxical, it is the necessary condition for the whole mechanism: because here there are only two classes: the working class, that only dispose of their labourpower; the capitalist class, who hold the social means of production as well as the money in their possession of monopoly.)ibid., chapt 20.

    Keynes

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index

    Y=E+Q=C+I=D
    Df = E + Q nancing joint. The nancing of production includes the prot to be realised at the realisation joint Dr = C + I realisation joint.Precluding real quasi-rents to be realised as a monetary prot, as they are already nanced or monetised; and therefore gure as a liability entry in the nancial sphere, even before they are to be realised. Dr > Df ???

    The Logical Impossibility of Monetary Prots Marx Keynes stock-ow consistent models A Heuristical Solution? An agent-based model founded on the suggested framework

    Keynes and User Costs


    Prime cost proper, viz. those which can be avoided by not undertaking output in the short period, divide into prime-factor costs, viz. those involved in employing concurrently ultimate factors of production, labour, short loans etc. and user costs or supplementary factor costs, viz. those involved in using machinery, - generally, the products of prime-factors employed in the past. They are prime costs because they can be avoided by not using the machinery, but they are not prime-factor costs because they do not involve the concurrent employment of ultimate factors of production (but arent necessarily paid out to anyone as income). (Harrod in C.W. xiii, p.539, my underlignings but the brackets are Harrods.) Harrod is envisaging income created in the production sphere, with no counterpoise in the nancial or monetary sphere!

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index The Logical Impossibility of Monetary Prots Marx Keynes stock-ow consistent models A Heuristical Solution? An agent-based model founded on the suggested framework

    Choice of Units, Eective Demand and Income

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index

    units In dealing with the theory of employment I propose, therefore, to make use of only two fundamental units of quantity, namely, quantities of money-values and quantities of employment.(G.T. p.41) eective demand The pivotal concept eective demand designates the entrepreneurs decision to produce in toto, it is expressed as an number of wage-units, that is a number of units of money. At the nancial joint this measures the monetary nancing of production. It is the nancial disbursement, Df, of the circuit. As such it is an empirical fact, and it is therefore what it happens to be.

    The Logical Impossibility of Monetary Prots Marx Keynes stock-ow consistent models A Heuristical Solution? An agent-based model founded on the suggested framework

    Denition of income Inconclusive: During any period of time the entrepreneurs will have sold nished output for a certain sum which we will designate as A. And they will end up with a capital equipment, which term includes both stocks of unnished goods or working capital and stocks of nished goods, both together having a value G. (Transcription of the rst paragraph in G.T. p. 52) We must...deduct...a certain sum, to represent that part of its value which has been (in some sense) contributed by the equipment inherited from the previous period...The problem of dening income is solved as soon as we have found a satisfactory method for calculating this deduction.(G.T. p.52)

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index The Logical Impossibility of Monetary Prots Marx Keynes stock-ow consistent models A Heuristical Solution? An agent-based model founded on the suggested framework

    Contributions Towards a Framework for Understanding Financial Crisis

    The diculty in arriving at a denition of income is due to the fact that the amount of the sales proceeds of any article is a gross gure...some deduction has to be made from the gross sale proceeds in order to arrive at a measure of what can be regarded as income...it is not immediately obvious what this deduction should be.(p.399)...there is a constant leakage going on in the circulation of income (quite apart from saving) unless entrepreneurs are making it good by new investment equal to what they have deducted from the gross price to cover user cost...For user cost is nancial provision made by the entrepreneur...If the entrepreneurs actual nancial deduction from gross price which he regards in no sense and in no circumstances available as income, could be laid down by an infallible formula, then I should dene income as what remains after this deduction. But there is no such formula.(p.417, my emphasis )

    Carsten Heyn-Johnsen and Charlotte Bruun Index The Logical Impossibility of Monetary Prots Marx Keynes stock-ow consistent models A Heuristical Solution? An agent-based model founded on the suggested framework

    The monetising and accounting of prots


    A Actual realised sales of nished products - empirical. F Factor payments (at macrolevel only labour) empirical. I Investment as a real phenomenon - imaginary! S Savings out of money-income - empirical. Q Prots - the maximand! - imaginary! 1. Q = A-F+I 2. Q+F-A = I 3. F-A = S 4. Q+S = I 5. Q = I-S

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index The Logical Impossibility of Monetary Prots Marx Keynes stock-ow consistent models A Heuristical Solution? An agent-based model founded on the suggested framework

    The monetising and accounting of prots


    A Actual realised sales of nished products - empirical. F Factor payments (at macrolevel only labour) empirical. I Investment as a real phenomenon - imaginary! S Savings out of money-income - empirical. Q Prots - the maximand! - imaginary! 1. Q = A-F+I 2. Q+F-A = I 3. F-A = S 4. Q+S = I 5. Q = I-S

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index The Logical Impossibility of Monetary Prots Marx Keynes stock-ow consistent models A Heuristical Solution? An agent-based model founded on the suggested framework

    Balance Sheet

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index The Logical Impossibility of Monetary Prots Marx Keynes stock-ow consistent models A Heuristical Solution? An agent-based model founded on the suggested framework

    Deposits Loans Capital Equities Net worth

    Households +Dh Lh +pE Vh

    Firms +Df Lf +K pE Vf

    Bank D +L

    Total 0 0 +K 0 +K

    Table: Balance sheet - simplied Godley,Dos Santos or Zezza

    Current Transaction Flow Matrix


    Positive is source, negative is use of funds. Capital gains not included since they are not transactions. Households C +W +id Dh il Lh +F SAVh Firms current capital +C +K K W +id Df il Lf -F Fu K Bank Total 0 0 0 0 0 0 0

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index The Logical Impossibility of Monetary Prots Marx Keynes stock-ow consistent models A Heuristical Solution? An agent-based model founded on the suggested framework

    Consumption Investment Wages interest D interest L dividends

    id D +il L 0

    Table: Current transaction ow matrix

    Flow of Funds
    From ows to Stock. Sectoral budget constraints. Capital gains may be added. Households SAVh Dh +Lh p Eh 0 SAVh+ pEt 1 Firms Fu Df +Lf +p Ef K 0 Fu pEt 1 Bank 0 +D L Total SAV 0 0 0 K 0 SAV = K

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index The Logical Impossibility of Monetary Prots Marx Keynes stock-ow consistent models A Heuristical Solution? An agent-based model founded on the suggested framework

    Savings Deposits Loans Equities Capital V

    Table: Flow of Funds

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun

    In a simplied World; SAVh = W - C Fu = K + C - W = retained prots SAV = SAVh + Fu = W - C + K + C - W = K rms do retain a part (Fu) of their prots (or Marshallian quasi-rents) (Dos Santos (2004)) The problem is that such prots have already been spend on purchasing capital goods! Firms only gain a real prot, not a monetary prot. Note similarity with Keynes Q + S = I

    Index The Logical Impossibility of Monetary Prots Marx Keynes stock-ow consistent models A Heuristical Solution? An agent-based model founded on the suggested framework

    A Simple Example - current transactions

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index The Logical Impossibility of Monetary Prots Marx Keynes stock-ow consistent models A Heuristical Solution? An agent-based model founded on the suggested framework

    Firms Total current capital Consumption +80C 0 Investment +20K 20K 0 Wages +100W -100W 0 SAVh=20 Fu =0 K =20 0 What if rms purchase capital for 40 rather than 20? HouseFirms Total holds current capital Consumption -80C +80C 0 Investment +40K 40K 0 Wages +100W -100W 0 SAVh=20 Fu =20 K =40 0

    Households -80C

    A Simple Example - current transactions

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index The Logical Impossibility of Monetary Prots Marx Keynes stock-ow consistent models A Heuristical Solution? An agent-based model founded on the suggested framework

    Firms Total current capital Consumption +80C 0 Investment +20K 20K 0 Wages +100W -100W 0 SAVh=20 Fu =0 K =20 0 What if rms purchase capital for 40 rather than 20? HouseFirms Total holds current capital Consumption -80C +80C 0 Investment +40K 40K 0 Wages +100W -100W 0 SAVh=20 Fu =20 K =40 0

    Households -80C

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index The Logical Impossibility of Monetary Prots Marx Keynes stock-ow consistent models A Heuristical Solution? An agent-based model founded on the suggested framework

    Can the retained prots of 20 be seen as a monetary prot for the aggregate of rms - and can it be spend on purchasing capital goods or labor in future periods? The answer must be NO! The retained prots just means that households do not own all capital.

    A simple example - ow of funds


    With capital purchase of Households Savings +20SAVh Equities 20E Capital 0 V 0 With capital purchase of Households Savings +20SAVh Equities 20E Capital 0 V 0 20: Firms 0Fu +20E 20K 0 0 40: Firms

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index

    Total 20SAV 0 20K 0 SAV = K = 20 Total 40SAV 0 40K 0 SAV = K = 40

    The Logical Impossibility of Monetary Prots Marx Keynes stock-ow consistent models A Heuristical Solution? An agent-based model founded on the suggested framework

    +20Fu +40 20E 40K 0 0

    SFC and monetary prots

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index

    Societys change in net worth = savings = Capital Capital is a real prot to society. Not a monetary prot. Without a theory of value we cannot know its value - in real or monetary terms. Fu - retained prots can only be a positive monetary volume if another sector has negative savings. In the aggregate rms can at best get back the money the spent on wages. Fu cannot nance future investments. It has already been used for nancing investments. cause or eect? Is retained earnings determined by the rm, or by the saving or consumption decision of households?

    The Logical Impossibility of Monetary Prots Marx Keynes stock-ow consistent models A Heuristical Solution? An agent-based model founded on the suggested framework

    Where to search for a solution to the realisation problem?

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index The Logical Impossibility of Monetary Prots

    ...these diculties are rightly regarded as conundrums. They are purely theoretical in the sense that they never perplex, or indeed enter in any way into, business decisions and have no relevance to the causal sequence of economic events (Keynes(1936)) That they cannot obtain a monetary prot does not stop rms from producing. Either Marx and Keynes were wrong about M-C-M, or rms are somehow convinced that they earn a monetary prot!

    Marx Keynes stock-ow consistent models A Heuristical Solution? An agent-based model founded on the suggested framework

    A Heuristical Denition of Monetary Wealth


    Assets Liabilities = Wealth Works for monetary assets, but if we insists on a theoretical measure of real assets we end up in another logical impossibility (Capital controversy). valuation of real capital - thats what stock markets are for!!! Monetary assets + equity evaluated at stock market prices (Monetary Liabilities + equity evaluated at issuing price) = Monetary Wealth prot = monetary wealth of rms almost stock-ow consistent - a ow deduced from stocks rather than all changes in stocks determined from ows!

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index The Logical Impossibility of Monetary Prots Marx Keynes stock-ow consistent models A Heuristical Solution? An agent-based model founded on the suggested framework

    Praxis of the corporate sector


    There are, however, some distinctions between conventions that should be adopted when dealing with national accounts, one the one hand, and corporate sector accounts on the other. Emphasising the importance of constructing income and balance sheet accounts on a sectoral consistent basis leads us to the usual national accounting convention of treating equities as a liability of the corporate sector. [...] On the other hand, it is usual in interpreting corporate sector accounts not to treat equities as liabilities. The concept of wealth which is likely to be of economic interest excludes (some part of) equity as a liability of the corporate sector. (Patterson (1990))

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index The Logical Impossibility of Monetary Prots Marx Keynes stock-ow consistent models A Heuristical Solution? An agent-based model founded on the suggested framework

    almost Stock-Flow Consistency

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index The Logical Impossibility of Monetary Prots Marx

    Deposits Loans Capital Equities held issued Net worth

    Households + Dh Lh +pEh Vh

    Firms + Df L f +K +pEf E s Vf

    Bank D +L

    Total 0 0 +K pE E s (p 1)E + K

    Keynes stock-ow consistent models A Heuristical Solution? An agent-based model founded on the suggested framework

    Table: Heuristical Balance sheet

    Flows generate stocks

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index

    Consumption Investment Wages interest D interest L dividends

    Households C +W +id Dh il Lh +Fh SAVh

    Firms current capital +C +K K W +id Df il Lf +F f F SAVf K

    Bank

    Total 0 0 0 0 0 0 0

    The Logical Impossibility of Monetary Prots Marx Keynes stock-ow consistent models A Heuristical Solution? An agent-based model founded on the suggested framework

    id D +il Lg 0

    Table: Current transaction ow matrix

    Flows generate stocks

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index

    Savings Deposits Loans Equities New issues Capital

    Households SAVh Dh +Lh p Eh

    Firms SAVf Df +Lf p Ef +p E K 0

    Bank 0 +D L

    Total SAV 0 0 p E +p E K SAV = K

    The Logical Impossibility of Monetary Prots Marx Keynes stock-ow consistent models A Heuristical Solution? An agent-based model founded on the suggested framework

    Table: Flow of Funds

    Introducing revaluations
    Households SAVh Dh +Lh p Eh Firms SAVf Df +Lf p Ef +p E s K 0 pEft 1 p E s E s Vf = SAVf+ pEft 1 + p E s E s Bank SAVb +D L Total SAV 0 0 p E s + p E s K SAV = K pEt 1 p E s E s K + Ep + pEt 1 E s

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index The Logical Impossibility of Monetary Prots Marx Keynes stock-ow consistent models A Heuristical Solution? An agent-based model founded on the suggested framework

    Savings Depos. Loans Equity new issues Capital revaluations Equity new issues V

    0 pEht 1 Vh = SAVh+ +pEht 1

    Vb 0

    Table: Flow of Funds

    The monetary prot

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index The Logical Impossibility of Monetary Prots Marx Keynes stock-ow consistent models A Heuristical Solution? An agent-based model founded on the suggested framework

    When equity prices go up, society feels richer, and this may aect the behaviour of rms as well as households. The monetary wealth of households increase, and with a wealth-eect in consumption, consumption increases. The monetary prot of rms, dened as change in monetary wealth, increases, and this may make rms, as well as banks, more optimistic. When equity prices go down, we see the opposite eect.

    An agent-based model founded on the suggested framework

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index The Logical Impossibility of Monetary Prots Marx Keynes stock-ow consistent models A Heuristical Solution? An agent-based model founded on the suggested framework

    Agent-based macroeconomics - monetary production theory! Accounting identitites emerge since every ow has a sender as well as a recipient. All agents within a sector (household, producer of investment goods, producer of consumption goods) start out identical All agents trade on equity market Behaviour on equity market is stabilizing rather than herd following, i.e. they try to sell expensive and buy cheap! A Tobins q eect in investment decision. Herding behaviour as well as wealth eects in consumption!

    Results from an agent-based model founded on the suggested framework


    240000 Investment 220000 160000 Consumption 150000 200000 140000 180000 130000 160000 120000 140000 110000 120000

    Contributions Towards a Framework for Understanding Financial Crisis Carsten Heyn-Johnsen and Charlotte Bruun Index The Logical Impossibility of Monetary Prots Marx Keynes stock-ow consistent models

    100000

    100000

    80000 600

    650

    700

    750

    800

    90000 600

    650

    700

    750

    800

    A Heuristical Solution?

    Investment
    145 Stock Prices 13000

    Consumption
    Stock - New Issues

    An agent-based model founded on the suggested framework

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