Empirical stock-flow consistent models: Editorial to the special issue

Zezza, Gennaro; Valdecantos, Sebastian Article Empirical stock-flow consistent models: Editorial to the special issue European Journal of Economics and Economic Policies: Intervention (EJEEP) Provided in Cooperation with: Edward Elgar Publishing Suggested Citation: Zezza, Gennaro; Valdecantos, Sebastian (2025) : Empirical stock-flow consistent models: Editorial to the special issue, European Journal of Economics and Economic Policies: Intervention (EJEEP), ISSN 2052-7772, Edward Elgar Publishing, Cheltenham, Vol. 22, Iss. 3, pp. 298-300, https://doi.org/10.4337/ejeep.2025.03.02 This Version is available at: https://hdl.handle.net/10419/333440 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ European Journal of Economics and Economic Policies: Intervention, Vol. 22 No. 3, 2025, pp. 298–300 Journal compilation © 2025 Edward Elgar Publishing Ltd © 2025 The Author Editorial This is an open access work Growth models, growth strategies, and power blocs in Turkey and Egypt in the twenty-first century Ali Rıza Güngen Social Sciences, Columbia College, Canada Ümit Akçay Institute for International Political Economy, Berlin School of Economics and Law, Berlin, Germany [email protected] Analysis of the growth patterns in the Global South in the twenty-first century suggests there is room for authoritarian states to search for new growth models. Authoritarian states, such as Turkey and Egypt, benefited from global financial circumstances in the early 2000s and experienced shifts in growth strategies in the 2010s, suppressing political space further. Our main research question, thus, is focusing on what the main domestic political economy causes of these growth strategy and model changes are. To explain the changes in growth strategies and models amid the strength of reinforced authoritarian regimes in these two countries, we employ a hybrid research strategy, tying growth model changes to conflicts within the power bloc. We argue that in the mid-to-late 2010s, peripheral goods producers gained the upper hand in Turkey, while a military takeover in Egypt was followed by the promotion of exports and new investments. We also contend that power bloc reconfigurations in the last decade and the rise of new growth strategies both in Turkey and in Egypt aimed to change previous domestic demand-led demand and growth models. Keywords: comparative political economy, growth models, growth strategies, Turkey, Egypt JEL codes: B52, E65, E66, F43, O43, P52 1 INTRODUCTION Authoritarian states in Turkey and Egypt rejuvenated themselves in the 2010s. This was a development contrary to the widespread expectation that when faced with deep economic crises and brewing social discontent, authoritarian regimes are less likely to maintain their power. This study elaborates on the growth models of Turkey and Egypt in the twentyfirst century. Despite significant differences regarding export capacity and macroeconomic indicators, political economic developments converge in various aspects in these two countries. Moreover, the authoritarian regimes in both Turkey and Egypt maintained their power while increasingly suppressing the political space in the 2010s (Tuğal 2016). We describe authoritarianism as a set of practices that isolates key policy-making processes from democratic oversight and excludes large groups such as working classes, ethnic minorities or subaltern groups from institutional politics (Salgado 2022). From a critical political economy perspective, authoritarian practices cannot be conceived as clearly cut from Research Article This isan open access work Received 8 December 2022, accepted 7 November 2023 European Journal of Economics and Economic Policies: Intervention, Vol. 21 No. 1, 2024, pp. 151–171 First published online: April 2024; doi: 10.4337/ejeep.2024.01.09 Journal compilation © 2024 Edward Elgar Publishing Ltd © 2024 The Author Empirical stock-flow consistent models Editorial to the special issue Gennaro Zezza* University of Cassino, Italy and Levy Economics Institute, USA Sebastian Valdecantos** Aalborg University, Denmark This Special Issue is a collection of some contributions presented to the first workshop on empirical stock-flow consistent (SFC) models, organized at the Aalborg University, Denmark, in September 2023. In the past 25 years or so, stock-flow consistent models have been adopted by a growing number of new research contributions to macroeconomics, which do not rely on micro-foundations and the general equilibrium approach. The reason for the success of this approach stems from the effectiveness in dealing in an appropriate way with the integrated analysis of real and financial markets. In addition, the flexibility of the approach makes it an excellent candidate for the development of models that go beyond the economy to analyze the interactions with the environment, the use of exhaustible resources, etc. The interested reader is referred to the most influential contribution to the SFC approach in Godley and Lavoie (2007) and to the following surveys: Caverzasi and Godin (2015), Nikiforos and Zezza (2017) and Carnevali et al. (2019). The purpose of the 2023 Aalborg workshop was to connect individuals and research groups who focused more specifically on SFC models estimated or calibrated to data for whole countries, rather than on simpler theoretical models. The contribution by Christos Pierros provides a useful survey of empirical SFC models for whole countries. The author proposes a taxonomy, suggesting that these models have developed from (a) New Cambridge1 3-sector models considering the private sector as a whole, along with the government and the foreign sector (NC models); (b) Godley– Lavoie type models, based on the seminal work of Godley and Lavoie (2007), where the private sector is split into Households, Non-financial businesses and one or more types of financial institutions (GL models); and (c) models with a High degree of Complexity, which have appeared more recently (HC models). A comprehensive list of contributions in the three groups is presented and discussed, stressing that models in the last category vary substantially according to the main research question they aim to address. 1 . This label is associated with the work of Francis Cripps, Wynne Godley and their associates in Cambridge (UK) in the 1970s–1980s. See Cripps and Godley (1976) amongst others. * Corresponding author – Email: [email protected]. ** Email: [email protected]. Editorial to the special issue 299 Journal compilation © 2025 Edward Elgar Publishing Ltd© 2025 The Author According to Pierros, a higher degree of complexity, however, comes at the cost of a worse goodness of fit against actual data, mainly for the volatility of financial markets. The author concludes with suggestions on how to improve such models with a better specification of the productive structure and both financial and labor markets. The paper by Huub Meijers and Joan Muysken, ‘Theory and measurement in SFC models: the role of the financial sector’, refers to an SFC model for the Dutch economy developed by the authors2 to illustrate all data collection and manipulation problems that arise in the construction and calibration of an SFC model for a whole country. Their model falls into Pierros’ HC category, with a detailed discussion on institutions often ignored in other SFC models, such as Pension Funds. They also point out well-known problems with verifying the consistency of published data, namely the reconciliation of flow data coming from national accounts to financial data in the flow of funds and balance sheets. The authors describe how such problems can be overcome with appropriate assumptions. The other papers refer to SFC models for specific countries. The contribution by Laurentjoye and colleagues from Aalborg University, ‘Flexibility in design: the multiple applications of a medium-sized empirical model for Denmark’, shows the benefits of choosing a model structure that is neither too simple nor too complex, providing the flexibility needed to address different research questions relative to the country under study. The model for Denmark is used to address different topics: (1) determining whether the Danish economy is wage led or profit led, showing complex relationship between demand, income distribution and growth, which do not imply a clear categorization, thus allowing for possible switches between the two regimes; (2) discussing the effectiveness of monetary policy to address inflationary pressures in the post-COVID phase, with results showing that coordination between fiscal and monetary policy would be more effective in reducing inflation, whilst having less perverse effects on real GDP growth; (3) studying the determinants of the growing current account surplus of Denmark after 2010; and (4) analyzing the potential impact of a reduction in unemployment benefits. Chong, Mazier and Reyes, ‘Macroeconomic policy evaluation in an SFC econometric model: the case of the investment programme for climate action in France’, presents an analysis of the investment program for climate action in France, using an SFC model built following previous work by some of the same authors, modified to handle the specificities of the proposed low-carbon transition in the country. Model simulation shows that the impact of the proposed program has a much lower adverse effect on public finances with respect to other estimates, but a worse effect on the balance of payments. The model SFC structure allows to discuss sources of funds, as well as implications for wealth/debt accumulation of the different institutional sectors. Francesco Zezza, ‘Fiscal and monetary policy in an SFC model of the Italian economy’, uses a relatively complex model of the Italian economy (Zezza/Zezza 2022) to evaluate the effects of fiscal and monetary policy on the country. The paper also discusses the differences of the model against other structural models of the Italian economy and provides evidence of the ability of the model to track historical data using dynamic simulation. Last, but not least, a special session in the workshop was dedicated to research from younger scholars. David An, ‘Modelling the green transition of the Chinese economy’, presents a sophisticated SFC model, which is expanded – with respect to other SFC models – to discuss the role of the energy sector and the impact of emissions. After the model description, 2 . See Meijers and Muysken (2022). European Journal of Economics and Economic Policies: Intervention, Vol. 22 No. 3300 Journal compilation © 2025 Edward Elgar Publishing Ltd © 2025 The Author the author discusses the results of alternative scenarios based on different carbon pricing policies. The paper by Simon Fløj Thomsen, ‘The impact of environmental regulations on competitiveness and carbon leakage’, evaluates two alternative hypotheses: the ‘pollution haven’, which suggests that environmental regulations can positively affect country level competitiveness through green research and development, against the ‘Porter hypothesis’, suggesting that regulations imply higher production costs, with negative effects on productivity. The author develops a two-area SFC model, calibrated to match key variables for the Danish economy, to simulate the effects of the introduction of environmental regulations, finding that the adverse effects on productivity are stronger in the short run, but positive effects prevail in the medium-long run, even in a small open economy like Denmark. Overall, the contributions gathered in this Special Issue reflect the rapid progress that empirical stock-flow consistent modeling has made in recent years. From comparative surveys to detailed country studies, and from the analysis of macroeconomic stabilization policies to the challenges posed by climate change and the green transition, the papers illustrate the richness and flexibility of the SFC approach. They also highlight the ongoing methodological challenges, particularly regarding data consistency and the trade-off between model complexity and empirical fit. By bringing together diverse applications and perspectives, this collection provides both a state-of-the-art overview and a stimulus for further research, strengthening the role of empirical SFC models as a powerful tool for the study of contemporary macroeconomic issues. REFERENCES Carnevali, E., Deleidi, M., Pariboni, R., Passarella, M.V. (2019): Stock-flow consistent dynamic models: features, limitations and developments, in: Arestis, P., Sawyer, M. (eds), Frontiers of Heterodox Macroeconomics, Cham: Springer International Publishing, 223–276, https://doi. org/10.1007/978-3-030-23929-9_6. Caverzasi, E., Godin, A. (2015): Post-Keynesian stock-flow-consistent modelling: a survey, in: Cambridge Journal of Economics, 39(1), 157–187, https://doi.org/10.1093/cje/beu021. Cripps, F., Godley, W. (1976): A formal analysis of the Cambridge Economic Policy Group Model, in: Economica, 43(172), 335–348, https://doi.org/10.2307/2553270. Godley, W., Lavoie, M. (2007): Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth, London: Palgrave Macmillan, https://doi.org/10.1057/9780230626546. Meijers, H., Muysken, J. (2022): The macroeconomic implications of financialisation on the wealth distribution – a stock‐flow consistent approach, UNU-MERIT Working Paper Series, No 2022–035. Nikiforos, M., Zezza, G. (2017): Stock-flow consistent macroeconomic models: a survey, in: Journal of Economic Surveys, 31(5), 1204–1239, https://doi.org/10.1111/joes.12221. Zezza, F., Zezza, G. (2022): A stock-flow consistent quarterly model of the Italian Economy, in: Byrialsen, M.R., Raza, H., Olesen, F. (eds), Macroeconomic Modelling, Economic Policy and Methodology, London: Routledge, 113–142.