An Empirical Stock-Flow Consistent Macroeconomic Model for Denmark

Abstract

This paper emphasizes the need for understanding the interdependencies between the real and financial sides of the economy in macroeconomic models. While the real side of the economy is generally well explained in macroeconomic models, the financial side and its interaction with the real economy remains poorly understood. This paper makes an attempt to model the interdependencies between the real and financial sides of the economy in Denmark while adopting a stock-flow consistent approach. The model is estimated using Danish data for the period 1995-2016. The model is simulated to create a baseline scenario for the period 2017-30, against which the effects of two standard shocks (fiscal shocks and interest rate shocks) are analyzed. Overall, our model is able to replicate the stylized facts, as will be discussed. While the model structure is fairly simple due to different constraints, the use of the stockflow approach makes it possible to explain several transmission mechanisms through which real economic behavior can affect the balance sheets, and at the same time capture the feedback effects from the balance sheets to the real economy. Finally, we discuss certain limitations of our model.

An empirical Stock‐Flow Consistent regional model of Campania

“…In the model, we have three different real assets: homes (KH), machineries (KM), warehouses/infrastructures (KNR). Following Byrialsen and Raza (2020), Godley and Lavoie (2007), and Zezza and Zezza (2020), investment in housing is determined by a stochastic equation which links the growth rate in investment – relative to the existing stock of homes , Equation ) – to disposable income and the interest rate on mortgages ( ). Firm's investment is determined by a stochastic equation which links its growth rate – relative to the existing capital stock , Equation ) – to their disposable income and the changes in loans .…”

Household debt and macroeconomic stability: An empirical stock‐flow consistent model for the Danish economy

“…Since the analysis is centered around the issue of household debt, we will mostly present our model with a focus on household sector. A complete description of the data used in the model can be found in Byrialsen and Raza (2020). Prior to presenting the structure of the model, we first explain the data used in the model.…”

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“…As such, the model portrays an economy which grows according to its autonomous component's constant growth rates. This approach contrasts to other modelling representations, such as Byrialsen and Raza (2020), where exogenous variables -e.g., housing prices, -have a direct in uence on the model's dynamics, enabling a non-smooth growth trend and cyclical behaviour for the endogenous variables.…”