sectoral balances

The Devil Is In The Detail

15 January 2015

There are two ways in which the terminology “net lending” is used. In national accounts, it is the difference between saving and investment for any economic unit or a sector. “S − I”. It is the financial surplus. Bankers and central bankers use “net lending” a bit differently. Here there is “netting” when redemptions are netted.  For example, suppose […]


A Clueless Sveriges Riksbank Prize Winner

14 October 2013

The subject of money, credit and moneyflows is a highly technical one, but it is also one that has a wide popular appeal. For centuries it has attracted quacks as well as serious students, and there has too often been difficulty in distinguishing a widely held popular belief from a completely formulated and tested scientific […]


Erroneous Use Of The Sectoral Balances Identity

2 May 2013

Andrew Lilico of The Telegraph takes issue with the arguments presented using the sectoral balances identity. The website describes him as: Andrew Lilico is an Economist with Europe Economics, and a member of the Shadow Monetary Policy Committee. He was formerly the Chief Economist of Policy Exchange. After interpreting the accounting identities in his own way, […]


Claims Economists Make

17 January 2013

Economists struggle with simple things. Two examples. National Saving, Trade Deficits etc. In a blog article Has Anyone Heard of the Trade Deficit?, Dean Baker uses the sectoral balances identity to make a claim which is presented like a no-go theorem. Baker says: Fans of arithmetic (a tiny minority among DC policy types) like to point […]


Wynne Godley And The Dynamics Of Deficits And Debts

5 January 2013

In a five-part series in his blog, Functional Finance and the Debt Ratio Scott Fullwiler claims that if the interest rate is held below the growth rate of output, sustainability of the public debt/gdp ratio is guaranteed in the sense that the ratio converges and does not keep increasing forever. This is erroneous and his conclusions are […]


Random Tidbits On National Accounts And Keynesian Models Of Income And Expenditure

13 December 2012

I came across this article (via a Tweet from Stephen Kinsella): Accounting As The Master Metaphor Of Economics by Arjo Klamer and Donald McCloskey which discusses how the framework of national accounts has been pushed to the background in economic analysis over the years. It is a nice read – although boring in a few places. I […]


We Are NOT All Keynesians Now!

13 December 2012

The Jan Hatzius interview on sectoral balances mentioned in the previous post – although has given it some popularity – has led to great confusions among economic commentators. Here is a confused Professor from the famous institute INSEAD – Antonio Fatás on his blog. Fatás implicitly denies that propensities to consume/save and government expenditure and taxing decisions have […]


Jan Hatzius On Sectoral Balances

10 December 2012

Business Insider’s Joe Weisenthal interviewed Goldman Sachs’ Jan Hatzius recently with questions aimed at his usage of the sectoral balances approach: … BI: Back to the balance sheet, multi-sectoral framework of looking at the economy. How did you come to this view? On Wall Street this is still very rare. I don’t see many economist […]


More On Wynne Godley’s Methodology

22 July 2012

Matias Vernengo has a post on Stock-Flow Consistent Macroeconomics: Stock-Flow With Consistent Accounting (SFCA) Models. He has a nice way of giving a short description of pricing in the G&L models: In my view, the stock-flow and the demand driven (and I should say, the fact that price dynamics is orthogonal to the income flow determination […]


Martin Wolf On Wynne Godley’s Sectoral Financial Balances Approach

19 July 2012

Martin Wolf who usually writes good articles on macroeconomic developments wrote recently on the sectoral balances approach (which he uses frequently anyway). In his recent post The Balance Sheet Recession In The US he writes: … I look at this through the lens of “sectoral financial balances”, an analytical framework learned from the work of the late Wynne […]