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Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Energy, Finance, and Macroeconomics
M. R. Grasselli
McMaster UniversityJoint work with B. Costa Lima, X.-S. Wang, J. Wu
Fields Institute Focus Program on Commodities, Energy,and Environmental Finance
Program Visitor Seminars, August 06, 2013
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Dynamic Stochastic General Equilibrium
Overwhelmingly dominant school in macroeconomics.
Seeks to explain the aggregate economy using theoriesbased on strong microeconomic foundations.
All variables are assumed to be simultaneously inequilibrium.
The only way the economy can be in disequilibrium at anypoint in time is through decisions based on wronginformation.
Money is neutral in its effect on real variables and onlyaffects price levels.
Largely ignores the role of (irreducible) uncertainty.
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Hardcore (freshwater) DSGE
The strand of DSGE economists affiliated with RBCtheory made the following predictions after 2008:
1 Increases government borrowing would lead to higherinterest rates on government debt because of “crowdingout”.
2 Increases in the money supply would lead to inflation.3 Fiscal stimulus has zero effect in an ideal world and
negative effect in practice (because of decreasedconfidence).
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Wrong prediction number 1
Figure: Government borrowing and interest rates.
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Wrong prediction number 2
Figure: Monetary base and inflation.
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Wrong prediction number 3
Figure: Fiscal tightening and GDP.
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Soft core (saltwater) DSGE
The strand of DSGE economists affiliated with NewKeynesian theory got all these predictions right.
They did so by augmented DSGE with ‘imperfections’(wage stickiness, asymmetric information, imperfectcompetition, etc).
Still DSGE at core - analogous to adding epicycles toPtolemaic planetary system.
For example: “Ignoring the foreign component, or lookingat the world as a whole, the overall level of debt makes nodifference to aggregate net worth – one person’s liability isanother person’s asset.” (Paul Krugman and Gauti B.Eggertsson, 2010, pp. 2-3)
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Then we can safely ignore this...
Figure: Private and public debt ratios.
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Really?
Figure: Change in debt and unemployment.
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Minsky’s alternative interpretation of Keynes
Neoclassical economics is based on barter paradigm:money is convenient to eliminate the double coincidence ofwants.
In a modern economy, firms make complex portfoliosdecisions: which assets to hold and how to fund them.
Financial institutions determine the way funds areavailable for ownership of capital and production.
Uncertainty in valuation of cash flows (assets) and creditrisk (liabilities) drive fluctuations in real demand andinvestment.
Economy is fundamentally cyclical, with each state (boom,crisis, deflation, stagnation, expansion and recovery)containing the elements leading to the next in anidentifiable manner.
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Minsky’s Financial Instability Hypothesis
Start when the economy is doing well but firms and banksare conservative.
Most projects succeed - “Existing debt is easily validated:it pays to lever”.
Revised valuation of cash flows, exponential growth incredit, investment and asset prices.
Beginning of “euphoric economy”: increased debt toequity ratios, development of Ponzi financier.
Viability of business activity is eventually compromised.
Ponzi financiers have to sell assets, liquidity dries out,asset market is flooded.
Euphoria becomes a panic.
“Stability - or tranquility - in a world with a cyclical pastand capitalist financial institutions is destabilizing”.
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Much better economics: SFC models
Stock-flow consistent models emerged in the last decadeas a common language for many heterodox schools ofthought in economics.
Consider both real and monetary factors from the start
Specify the balance sheet and transactions between sectors
Accommodate a number of behavioural assumptions in away that is consistent with the underlying accountingstructure.
Reject silly (and mathematically unsound!) hypothesessuch as the RARE individual (representative agent withrational expectations).
See Godley and Lavoie (2007) for the full framework.
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
An example of a (fairly general) Godley table
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Godley table for monetary Keen model
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Accounting relations for monetary Keen model
From the first, second and third columns of thetransactions and flow of funds matrices we obtain that
W + rMMh − C = Sh = Mh, (1)
C −W + rMMf − rLL = Ffu − I = Mf − L (2)
rLL− rMM = Sb = L− M. (3)
An example of firm behaviour satisfying (1)–(3) is
L = I − R (4)
Mf = I − R + C −W + rMMf − rLL (5)
for chosen levels of investment I and repayment R.
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Special case: Keen (1995)
Let D = L−Mf and assume that p = p0, rM = rF = r .
Supposing further that Φ = Φ(λ) and I = κ(π)Y , whereπ = 1− ω − rd , leads to
ω = ω [Φ(λ)− α]
λ = λ
[κ(1− ω − rd)
ν− α− β − δ
](6)
d = d
[r − κ(1− ω − rd)
ν+ δ
]+ κ(1− ω − rd)− (1− ω)
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Equilibria
The system (6) has a good equilibrium at
ω = 1− π − rν(α + β + δ)− π
α + β
λ = Φ−1(α)
d =ν(α + β + δ)− π
α + β
withπ = κ−1(ν(α + β + δ)),
which is stable for a large range of parameters
It also has a bad equilibrium at (0, 0,+∞), which is stableif
κ(−∞)
ν− δ < r (7)
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Example 1: convergence to the good equilibrium ina Keen model
0.7
0.75
0.8
0.85
0.9
0.95
1
λ
ωλYd
0
1
2
3
4
5
6
7
8x 10
7
Y
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
d
0 50 100 150 200 250 300
0.7
0.8
0.9
1
1.1
1.2
1.3
time
ω
ω0 = 0.75, λ
0 = 0.75, d
0 = 0.1, Y
0 = 100
d
λ
ω
Y
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Example 2: explosive debt in a Keen model
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
λ
0
1000
2000
3000
4000
5000
6000Y
0
0.5
1
1.5
2
2.5x 10
6
d
0 50 100 150 200 250 3000
5
10
15
20
25
30
35
time
ω
ω0 = 0.75, λ
0 = 0.7, d
0 = 0.1, Y
0 = 100
ωλYd
λ
Y d
ω
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Basin of convergence for Keen model
0.5
1
1.5
0.40.5
0.60.7
0.80.9
11.1
0
2
4
6
8
10
ωλ
d
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Godley table for model with government
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Modified Keen model with government
Following Keen (and echoing Minsky) we modelgovernment spending and taxation as
G = Γ(λ)Y
T = Θ(π)Y
and add government subsidies to firms as
Gs = Γs(λ)Gs
Defining g = G/Y , gs = Gs/Y and τ = T/Y , the netprofit share is now
π = 1− ω − rd + gs − τ,
and government debt evolves according to
B = rBB + G + Gs − T .
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Good equilibrium
The system (??) has a good equilibrium at
ω = 1− π − rν(α + β + δ)− π
α + β− Θ(π)
α + β
λ = Φ−1(α)
π = κ−1(ν(α + β + δ))
g s = 0
and this is locally stable for a large range of parameters.The other variables then converge exponentially fast to
d =ν(α + β + δ)− π
α + β
g =Γb(λ)
α + β
τ =Θ(π)
α + β
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Bad equilibria - destabilizing a stable crisis
Recall that π = 1− ω − rd + gs − τ .
The model has bad equilibria of the form
(ω, λ, gs , π) = (0, 0, 0,−∞)
(ω, λ, gs , π) = (0, 0,±∞,−∞)
If gs(0) > 0, then any equilibria with π → −∞ is locallyunstable provided Γs(0) > r .
On the other hand, if gs(0) < 0 (austerity), then theseequilibria are all locally stable.
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Persistence
Proposition 1: Assume gs(0) > 0, then the model is eπ-UWPprovided Γs(0) > r .
Proposition 2: Assume gs(0) > 0, then the model is λ-UWPif either of the following conditions is satisfied:
1 Γs(0) > max{r , α + β}2 r < Γs(0) ≤ α + β and−r(κ(x)− x) + (1− x)µ(x) + Γ(0)−Θ(x) > 0 forµ(x) ∈ [Γs(0), α + β].
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Example 3: Good initial conditions
0
0.2
0.4
0.6
0.8
1
λ
0
0.1
0.2
0.3
0.4
0.5d K
0 50 100 150 200 250 3000
0.2
0.4
0.6
0.8
1
time
ω
ω(0) = 0.9, λ(0) = 0.9, dk(0) = 0.1, g
b(0) = 0.05, g
s(0) = 0.05, τ
b(0) = 0.05, τ
s(0) = 0.05, d
g(0) = 0, r = 0.03, η
s(0) = 0.02
Keen Model+ Unified Government
0.05
0.06
0.07
0.08
0.09
0.1
τ B+
τ S
0
2
4
6
8
10
d g
0 50 100 150 200 250 3000.05
0.1
0.15
0.2
0.25
time
g B+
g S
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Example 4: Bad initial conditions
0
0.2
0.4
0.6
0.8
1
λ
0
0.5
1
1.5
2d K
0 50 100 150 200 250 3000
50
100
150
200
250
300
time
ω
ω(0) = 0.7, λ(0) = 0.7, dk(0) = 0.5, g
b(0) = 0.05, g
s(0) = 0.05, τ
b(0) = 0.05, τ
s(0) = 0.05, d
g(0) = 0, r = 0.03, η
s(0) = 0.02
Keen Model+ Unified Government
0.04
0.05
0.06
0.07
0.08
0.09
0.1
τ B+
τ S
0
2
4
6
8
10
d g
0 50 100 150 200 250 3000
0.1
0.2
0.3
0.4
time
g B+
g S
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Example 5: Really bad initial conditions with timidgovernment
0
0.2
0.4
0.6
0.8
1
λ
0
0.5
1
1.5
2
2.5x 10
5
d K
0 50 100 150 200 250 3000
5
10
15
20
25
time
ω
ω(0) = 0.5, λ(0) = 0.3, dk(0) = 5, g
b(0) = 0.05, g
s(0) = 0.05, τ
b(0) = 0.05, τ
s(0) = 0.05, d
g(0) = 0, r = 0.03, η
s(0) = 0.02
Keen Model+ Unified Government
−400
−300
−200
−100
0
100
τ B+
τ S
0
1
2
3
4
5
6x 10
7
d g
0 50 100 150 200 250 3000
100
200
300
400
500
600
time
g B+
g S
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Example 6: Really bad initial conditions withresponsive government
0
0.2
0.4
0.6
0.8
1
λ
0
500
1000
1500d K
0 50 100 150 200 250 3000
10
20
30
40
time
ω
ω(0) = 0.5, λ(0) = 0.3, dk(0) = 5, g
b(0) = 0.05, g
s(0) = 0.05, τ
b(0) = 0.05, τ
s(0) = 0.05, d
g(0) = 0, r = 0.03, η
s(0) = 0.2
Keen Model+ Unified Government
−8
−6
−4
−2
0
2
τ B+
τ S
0
100
200
300
400
500
d g
0 50 100 150 200 250 3000
5
10
15
20
25
30
time
g B+
g S
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Hopft bifurcation with respect to governmentspending.
0.68
0.682
0.684
0.686
0.688
0.69
0.692
OMEGA
0.28 0.285 0.29 0.295 0.3 0.305 0.31 0.315 0.32 0.325eta_max
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Ponzi financing
To introduce the destabilizing effect of purely speculativeinvestment, we consider a modified version of the previousmodel with
D = κ(1− ω − rd)Y − (1− ω − rd)Y + P
P = Ψ(g(ω, d)P
where Ψ(·) is an increasing function of the growth rate ofeconomic output
g(ω, d) =κ(1− ω − rd)
ν− δ.
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Example 7: effect of Ponzi financing
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 10
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
λ
ω
ω0 = 0.95, λ
0 = 0.9, d
0 = 0, p
0 = 0.1, Y
0 = 100
No SpeculationPonzi Financing
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Stock prices
Consider a stock price process of the form
dStSt
= rbdt + σdWt + γµtdt − γdN(µt)
where Nt is a Cox process with stochastic intensityµt = M(p(t)).
The interest rate for private debt is modelled asrt = rb + rp(t) where
rp(t) = ρ1(St + ρ2)ρ3
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Example 8: stock prices, explosive debt, zerospeculation
0 10 20 30 40 50 60 70 80 90 1000
0.5
1
ωλ
0 10 20 30 40 50 60 70 80 90 1000
1
2
0 10 20 30 40 50 60 70 80 90 1000
500
1000
pd
0 10 20 30 40 50 60 70 80 90 1000
50
100
150
200
St
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Example 9: stock prices, explosive debt, explosivespeculation
0 10 20 30 40 50 60 70 80 90 1000
1
2
3
ω
λ
0 10 20 30 40 50 60 70 80 90 10002468
10
0 10 20 30 40 50 60 70 80 90 10002004006008001000
pd
0 10 20 30 40 50 60 70 80 90 1000
5000
10000
St
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Example 10: stock prices, finite debt, finitespeculation
0 10 20 30 40 50 60 70 80 90 1000.7
0.8
0.9
1
ωλ
0 10 20 30 40 50 60 70 80 90 1000.009
0.01
0.011
0 10 20 30 40 50 60 70 80 90 100−0.5
0
0.5
pd
0 10 20 30 40 50 60 70 80 90 1000
100
200
300
400
St
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Stability map
0.5
0.5
0.55
0.55
0.55
0.55
0.55
0.55
0.55
0.550.550.
55
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.65
0.65
0.65
0.65 0.65
0.65
0.65
0.65
0.7
0.7
0.7
0.7
0.7
0.75
0.75
0.8
0.8
0.85
0.85
0.5
0.55
0.55
0.55
0.6
0.6
0.55
0.6
0.55
0.50.6
0.6
0.5
0.6
0.65
0.55
0.9
0.55
0.6
0.7
0.5
0.55
0.55
0.65
0.6
0.65 0.60.7
0.7
0.65
0.8
0.6
0.6
0.6
0.60.6
0.6
0.45 0.
5
0.45
0.6
0.55
0.7
0.5
0.8
0.65
0.5
0.6
0.7
0.5
0.5
0.6
0.6
λ
d
Stability map for ω0 = 0.8, p
0 = 0.01, S
0 = 100, T = 500, dt = 0.005, # of simulations = 100
0.7 0.75 0.8 0.85 0.9 0.950
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
0.45
0.5
0.55
0.6
0.65
0.7
0.75
0.8
0.85
0.9
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
A model with the energy sector (Godin 2012)
Consider 3 productive sectors (widgets, capital goods,energy), 2 household sectors (wage earners andcapitalists), a government, and banks.
All sectors consume energy; wage earners and capitalistsconsume widgets; all productive sectors by capital goodsand pay wages; all firms and banks are owned bycapitalists.
Government collects taxes on households, paysemployment benefit, and issues bonds.
Banks make loans and accept deposits.
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Flows in the Godin model
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Behavioural assumptions in the Godin model
Consumption for wage earners and capitalists depend onpreferences for energy and widgets and current wealth.Income not consumed is saved in bonds (depending onwealth and interest rate) and the rest in cash.
Investment depend on current and target capacityutilization.
Prices are given by a mark-up factor further subdividedinto retained and distributed profits.
Retained profits depend on target leverage and expectedunit costs, which in turn determine possible prices.
Investment in excess of retained profits is financed byloans.
Banks accept all demand for loans and use governmentbonds as residual.
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Guaranteed Employer of Last Resort: Green Jobs
Government intervenes by hiring all unemployed workers ata minimum age to work in energy saving projects.
Unemployment benefit is replaced by wages.
Energy consumption by government and householdschanges to
Cg ,e = (1− ξgu)Cg ,e,−1
βh = (1− ξhu)βh−1
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Results in the Godin model
Energy,Finance, andMacroeco-
nomics
M. R. Grasselli
Introduction
Keen modelwithoutgovernment
Destabilizing astable crisis
Introducinggovernment
Ponzifinancing
Model withNoise
Energy sectorand ELR
Concluding thoughts
Opportunities abound to add more structure and detail toSFC models with an explicit energy sector, including othertypes of investment functions, more realistic financialmarkets, commodities prices, derivatives, etc.
For example, the effect of inventories in forward curvesmentioned by G. Swindle this morning is a prime exampleof the interaction between real and financial sectors thatcan be model in a SFC way.
This innovative way of macroeconomic modelling has justbegun and has the potential to be a paradigm shiftingdevelopment that, together with complementary work onincomplete knowledge, radical uncertainty, network theory,and agent-based models, can redefine the role ofmathematics in economic theory.
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