In this paper we build on the path-breaking stock-flow-consistent (SFC) model proposed by Lavoie and Godley (2001-2002), where the financing needs of firms are explicitly accounted for in the tradition of Davidson (1972), Minsky (1975) and the "Circuitist" school, and we (1) introduce a government sector, including a Central Bank, and (2) discuss how to make inflation endogenous. The inclusion of a government and a Central bank is crucial, if we want to use SFC models to discuss policy. A crucial point of departure of our approach from other mainstream macro models is that the latter usually assume that the economy’s long run (dynamic) equilibrium is pre-determined by real factors, and all the government and the central bank can possibly do is facilitate the convergence of the economy to (but not actually affect) this equilibrium. The model presented here, on the other hand, assumes that the Keynesian Principle of Effective Demand is valid even in the long run – conceived as a path-dependent and uncertain “sequence of short runs” – therefore allowing monetary factors to play a crucial role in the long run dynamic path of the economy. Simulation of the model show some interesting features: for instance, changes to interest rates controlled by monetary authorities may give conflicting results, since the adverse effect on investment of a rise in real interest rates is countered by the income effect obtained through higher interest payments which increase households’ income and expenditure. Finally, we show that under simple assumptions about wage and mark-up settings, our growth model will exhibit cycles around its steady-growth path
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