Modeling economic forces, power relations, and stock-flow consistency: a general constrained dynamics approach

In monetary Stock-Flow Consistent (SFC) models, accounting identities reduce the number of behavioral functions to avoid an overdetermined system of equations. We relax this restriction using a differentialalgebraic equation framework of constrained dynamics. Agents exert forces on the variables acc...

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Bibliographic Details
Published inIDEAS Working Paper Series from RePEc
Main Authors Richters, Oliver, Gloetzl, Erhard
Format Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.01.2018
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Summary:In monetary Stock-Flow Consistent (SFC) models, accounting identities reduce the number of behavioral functions to avoid an overdetermined system of equations. We relax this restriction using a differentialalgebraic equation framework of constrained dynamics. Agents exert forces on the variables according to their desire, for instance to gradually improve their utility. The parameter ‘economic power’ corresponds to their ability to assert their interest. In analogy to Lagrangian mechanics, system constraints generate additional constraint forces that lead to unintended dynamics. We exemplify the procedure using a simple SFC model and reveal its implicit assumptions about power relations and agents’ preferences.