Fiscal Policy Will Matter

Contributions in Stock-flow Modeling

“…We have demonstrated this result at the more theoretical level in a series of papers (Arestis and Sawyer, 2003a, 2003b, 2006, and this chapter has reached the same conclusion, drawing on the empirics of the stock-flow Levy model. We may, therefore, conclude, in the same manner suggested by Godley and McCarthy (1998), that 'an expansionary fiscal policy is a necessary condition for growth in the long term, reasserting an old Keynesian principle that sustained expansion requires continuously growing exogenous injections to the flow of income' (p. 39).…”

Economic Alternatives for Growth, Employment and Poverty Reduction

“…1 These main projections are subsequently inputted into an accounting framework of flows and stocks, and trends are econometrically generated as a result of model solutions. Core to these estimates are the macroeconomic relations outlined in Godley and Cripps (1983), which are specified further in Godley (1999) for the U.S. economy (see also Godley, 2000;Godley and McCarthy, 1998;Godley and Izurieta, 2001a;Martin, 2001), and in a series of publications of the Levy Economics Institute (Papadimitriou, Shaikh, Santos and Zezza, 2003. Izurieta (2005) revised this framework by generating a consistent series of holding gains based on the asset and debt positions of U.S. institutional sectors.…”

“…Their desired, or 'target', stock of wealth, properly measured, tends to have a stable relationship with income (see Godley and Cripps, 1983).…”

“…A stable macroeconomic relationship between stocks and flows is postulated. Such a relationship can be measured by the 'mean-lag', or the average period of time for income to be fully spent (Godley and Cripps, 1983).…”

Post Keynesian Theories of Crisis

“…Godley used this approach, and the availability of data on flows between these sectors, to assert that imbalances in inter-sectoral flows in the period after the 1990s recession ended could not be sustained, and therefore that a serious recession was imminent (Godley 2001(Godley , 1996Godley andIzurieta 2002, 2004;Godley et al 2005;Godley and Lavoie 2007;Godley and McCarthy 1998;Godley and Wray 2000). One conclusion that Godley derived from this approach stands in stark contrast to both Austrian and neoclassical approaches: he asserted that "expansionary fiscal policy is a necessary condition for growth in the long term" (Godley and McCarthy 1998: 39).…”