Stock Flow Consistent Models

Stock-flow consistent (SFC) models are macroeconomic models with a coherent integration between real and financial markets. They have been proposed and developed mainly within the post-Keynesian tradition. Empirical applications usually follow the “Cowles Commission” approach to model building, and often adopt the “New Cambridge” approach of modelling a three-sector (private, public, foreign) economy. Grounded in the pioneering work of Wynne Godley and James Tobin in the 1970s, after the publication of Monetary Economics by Godley and Lavoie (Palgrave Macmillan, London, 2007), and the recognition that this class of models was particularly successful in predicting the Great Recession of 2007–2009, SFC models are becoming the standard for macroeconomic models not developed from the optimizing behaviour of rational forward-looking agents.