Pie os, Ch is os
A icle
Empi ical s ock- low consis en models: e olu ion, cu en
s a e and p ospec s
Eu opean Jou nal o Economics and Economic Policies: In e en ion (EJEEP)
P o ided in Coope a ion wi h:
Edwa d Elga Publishing
Sugges ed Ci a ion: Pie os, Ch is os (2025) : Empi ical s ock- low consis en models: e olu ion,
cu en s a e and p ospec s, Eu opean Jou nal o Economics and Economic Policies: In e en ion
(EJEEP), ISSN 2052-7772, Edwa d Elga Publishing, Chel enham, Vol. 22, Iss. 3, pp. 301-316,
h ps://doi.o g/10.4337/ejeep.2024.0136
This Ve sion is a ailable a :
h ps://hdl.handle.ne /10419/333441
S anda d-Nu zungsbedingungen:
Die Dokumen e au EconS o dü en zu eigenen wissenscha lichen
Zwecken und zum P i a geb auch gespeiche und kopie we den.
Sie dü en die Dokumen e nich ü ö en liche ode komme zielle
Zwecke e iel äl igen, ö en lich auss ellen, ö en lich zugänglich
machen, e eiben ode ande wei ig nu zen.
So e n die Ve asse die Dokumen e un e Open-Con en -Lizenzen
(insbesonde e CC-Lizenzen) zu Ve ügung ges ell haben soll en,
gel en abweichend on diesen Nu zungsbedingungen die in de do
genann en Lizenz gewäh en Nu zungs ech e.
Te ms o use:
Documen s in EconS o may be sa ed and copied o you pe sonal
and schola ly pu poses.
You a e no o copy documen s o public o comme cial pu poses, o
exhibi he documen s publicly, o make hem publicly a ailable on he
in e ne , o o dis ibu e o o he wise use he documen s in public.
I he documen s ha e been made a ailable unde an Open Con en
Licence (especially C ea i e Commons Licences), you may exe cise
u he usage igh s as speci ied in he indica ed licence.
h ps://c ea i ecommons.o g/licenses/by/4.0/
Eu opean Jou nal o Economics and Economic Policies: In e en ion, Vol. 22 No. 3, 2025, pp. 301–316
Fi s published online: Sep embe 2024; doi: 10.4337/ejeep.2024.0136
Jou nal compila ion © 2025 Edwa d Elga Publishing L d
© 2025 The Au ho
Resea ch A icle
Recei ed 14 Ma ch 2024, accep ed 2 May 2024
This is an open access wo k
G ow h models, g ow h s a egies, and powe
blocs in Tu key and Egyp in he wen y- i s
cen u y
Ali Rıza Güngen
Social Sciences, Columbia College, Canada
Ümi Akçay
Ins i u e o In e na ional Poli ical Economy, Be lin School o Economics and Law, Be lin, Ge many
Uemi .Akcay@hw -be lin.de
Analysis o he g ow h pa e ns in he Global Sou h in he wen y- i s cen u y sugges s he e is oom
o au ho i a ian s a es o sea ch o new g ow h models. Au ho i a ian s a es, such as Tu key and
Egyp , bene i ed om global inancial ci cums ances in he ea ly 2000s and expe ienced shi s in
g ow h s a egies in he 2010s, supp essing poli ical space u he . Ou main esea ch ques ion,
hus, is ocusing on wha he main domes ic poli ical economy causes o hese g ow h s a egy and
model changes a e. To explain he changes in g ow h s a egies and models amid he s eng h o ein-
o ced au ho i a ian egimes in hese wo coun ies, we employ a hyb id esea ch s a egy, ying
g ow h model changes o con lic s wi hin he powe bloc. We a gue ha in he mid- o-la e
2010s, pe iphe al goods p oduce s gained he uppe hand in Tu key, while a mili a y akeo e in
Egyp was ollowed by he p omo ion o expo s and new in es men s. We also con end ha powe
bloc econ igu a ions in he las decade and he ise o new g ow h s a egies bo h in Tu key and in
Egyp aimed o change p e ious domes ic demand-led demand and g ow h models.
Keywo ds: compa a i e poli ical economy, g ow h models, g ow h s a egies, Tu key, Egyp
JEL codes: B52, E65, E66, F43, O43, P52
1 INTRODUCTION
Au ho i a ian s a es in Tu key and Egyp eju ena ed hemsel es in he 2010s. This was a
de elopmen con a y o he widesp ead expec a ion ha when aced wi h deep economic
c ises and b ewing social discon en , au ho i a ian egimes a e less likely o main ain hei
powe . This s udy elabo a es on he g ow h models o Tu key and Egyp in he wen y-
i s cen u y. Despi e signi ican di e ences ega ding expo capaci y and mac oeconomic
indica o s, poli ical economic de elopmen s con e ge in a ious aspec s in hese wo coun-
ies. Mo eo e , he au ho i a ian egimes in bo h Tu key and Egyp main ained hei
powe while inc easingly supp essing he poli ical space in he 2010s (Tuğal 2016). We
desc ibe au ho i a ianism as a se o p ac ices ha isola es key policy-making p ocesses
om democ a ic o e sigh and excludes la ge g oups such as wo king classes, e hnic mino-
i ies o subal e n g oups om ins i u ional poli ics (Salgado 2022). F om a c i ical poli-
ical economy pe spec i e, au ho i a ian p ac ices canno be concei ed as clea ly cu om
Resea ch A icle
This isan open access wo k
Recei ed 8 Decembe 2022, accep ed 7 No embe 2023
Eu opean Jou nal o Economics and Economic Policies: In e en ion, Vol. 21 No. 1, 2024, pp. 151–171
Fi s published online: Ap il 2024; doi: 10.4337/ejeep.2024.01.09
Jou nal compila ion © 2024 Edwa d Elga Publishing L d
© 2024 The Au ho
Empi ical s ock– low consis en models:
e olu ion, cu en s a e and p ospec s
Ch is os Pie os*
Resea che , Labou Ins i u e o he Gene al Con ede a ion o G eek Wo ke s (INE GSEE), A hens, G eece
The pape explo es he e olu ion o empi ical s ock– low consis en (SFC) models, emphasising hei
s uc u e, scope and numbe o inancial and physical asse s. Th ee ypes o models can be iden i ied.
The New Camb idge ype is cha ac e ised by he agg ega ion o households, i ms and banks in o one
agg ega e p i a e sec o . The Godley–La oie ype, e med a e he impac o hei collec i e wo k,
ea s he main ins i u ional sec o s sepa a ely. The hi d ype, despi e being la gely he e ogeneous, is
ma ked by highe complexi y. The pape a gues ha he s uc u e o he models should a y acco ding
o he esea ch ques ion a hand, as highe complexi y is ensued by augmen ed disc epancies be ween
in- sample p ojec ions and ac ual da a, especially in he inancial domain. Despi e his ade-o ,
se e al aspec s o he models need o be imp o ed, e en a he expense o ha ing mo e complica ed
s uc u es. The pape p o ides some indica ions owa ds he di ec ion ha hese imp o emen s ough
o ake.
Keywo ds: empi ical s ock– low consis en , s ock– low consis en modelling, empi ical mac os uc u al
models
JEL codes: E10, E12, E17
1 INTRODUCTION
Despi e ha he i s empi ical s ock– low consis en (SFC) model was de eloped in he la e
1970s, SFC models g adually ose o p ominence only e y ecen ly o easons al eady dis-
cussed in he li e a u e (Ca e zasi/Godin 2015; Niki o os/Zezza 2018; Zezza/Zezza 2019).
The s uc u e and he beha iou al amewo k o hese models ha e e ol ed om simple
o much mo e complex acco ding o he esea ch ques ions hey a e ying o add ess, he
dynamics hey a e ying o cap u e and he speci ici ies o he economy unde conside a ion.
Con a y o o he ypes o models, in which he ac ual alues a e plugged in o gene ic s uc-
u es,1 he ask o applying an SFC model in an ac ual economy is much mo e demanding.
Since hei ini ial de elopmen in he la e 1970s, h ee classes o SFC models can be
iden i ied. The New Camb idge (NC) app oach ollows i mly he me hodology de el-
oped p ima ily in he Camb idge Economic Policy G oup (CEPG) in he la e 1970s and
1 . In example, acco ding o Che ie e al. (2023), he sys ema isa ion and o malisa ion o
Dynamic S ochas ic Gene al Equilib ium (DSGE) models is such ha hei ac abili y and po abili y
is ensu ed nowadays wi h minimum e o .
* Email: [email p o ec ed]. A sho e and qui e di e en e sion o his pape appea s in
By ialsen, M., Valdecan os, S., and Raza, H. (eds.), Empi ical Mac oeconomic Models: An Applied
App oach, London, UK: Rou ledge.
Eu opean Jou nal o Economics and Economic Policies: In e en ion, Vol. 22 No. 3302
Jou nal compila ion © 2025 Edwa d Elga Publishing L d
© 2025 The Au ho
ea ly 1980s. The second ype is la gely in luenced by he seminal wo k o Godley/La oie
(2006) (hence o h GL), and i has a la ge s uc u e as compa ed o he i s ype and is
able o assess igo ously a la ge se o policies. Models ha belong o he hi d ype ha e a
highly complex s uc u e as hey aim o cap u e mo e complica ed ansmission channels
and mechanisms ha unde line he unc ion o ac ual economies. Fo his eason, hey a e
e med High Complexi y (HC) models.
The pape p o ides a sys ema ic e iew o he empi ical SFC models, based on hei
s uc u e. The models aken unde conside a ion cap u e he majo i y o an economy’s
ea u es, and hei beha iou al amewo k is ei he es ima ed econome ically o calib a ed
acco ding o ac ual da a. The discussion akes in o accoun 28 empi ical SFC models, he
as majo i y o which a e es ima ed econome ically, while wo a e o educed o m. I is
impo an o no e ha he e is a g owing numbe o models ha a e es ima ed–calib a ed
o mul i-coun y egions ins ead o single coun ies ( o example Jacques e al. 2023). In
o de o make he e iew mo e comp ehensi e, he ocus is laid on models ha a e applied
o single coun ies.2 The pape a gues ha , on he one hand, he isk o poo pe o mance
is g ea e , wi h he mo e complex being i s s uc u e. Simply pu , he e is a ade-o
be ween complexi y and he goodness o i . On he o he hand, some speci ic aspec s
a e o e ly simpli ied and need o be u he de eloped. The ac ual choice o he le el o
complexi y should depend on he na u e o he esea ch ques ion, da a a ailabili y and he
ea u es o he economy a hand.
The emainde o he pape is o ganised as ollows. Sec ion 2 discusses some pa icula
ea u es o empi ical SFC models, while Sec ion 3 is dedica ed o he desc ip ion o each o
he h ee ypes o SFC models. Sec ion 4 highligh s some issues ha ough o be add essed
in he u u e, and Sec ion 5 concludes.
2 MAIN FEATURES
The e m s ock– low consis ency has s ee ed a deba e on which models ul ima ely all
wi hin his ca ego y. Niki o os/ Zezza (2018) and Zezza/Zezza (2019) indica e a se o
s ock– low consis ency p inciples ha cha ac e ise he SFC models, which, howe e , a e
no mean o de ine hem accu a ely. Dos San os (2006) and Ehn s (2019) a gue ha
a majo cha ac e is ic o he SFC models is ha he beha iou al amewo k is no only
oo ed on bu also cons ained by a solid accoun ing s uc u e, as he la e educes he
deg ees o eedom in he cons uc ion o he beha iou al amewo k (Taylo 2004 ci ed
in La oie 2022: 294). Going a s ep u he would equi e a speci ic ocus on wha Zezza/
Zezza (2019) men ion as he s ock- o- low eedback p inciple.
SFC models can be iden i ied h ough an e olu iona y iew on he na u e o he bal-
ance shee , which, in essence, is he cumula i e ou come o decisions aken in he pas .
I egis e s in quan i a i e e ms he his o ical ou e o he e olu iona y pa h o he indi-
idual, sec o o he economy unde examina ion and cons ains he po en ial u u e ou -
comes. This comes abou h ough he in eg a ion o balance shee i ems in he beha iou al
equa ions. The dynamic mul iplie is a ypical example o his, as he in oduc ion o
he lagged ne weal h e ec on consump ion3 e lec s in a consis en manne he las ing
impac o he accumula ed pas decisions on he cu en and u u e ou comes.
2 . An excep ion is made o he global model o C ipps/Izu ie a (2014) as i is es ima ed
econome ically.
3 . See Godley/La oie (2006: ch.3).
Empi ical s ock– low consis en models: e olu ion, cu en s a e and p ospec s 303
Jou nal compila ion © 2025 Edwa d Elga Publishing L d© 2025 The Au ho
This migh no be a unique cha ac e is ic o he SFC models, bu i helps in dis-
inguishing hem om he as majo i y o o he ypes o models, such as he DSGE
models in which he balance shee is s ipped o om i s e olu iona y aspec s and me ely
adjus s g adually o some p ede e mined equilib ium alues.4 On he con a y, in SFC
models he balance shee cons i u es one o he main easons o he p esence o pa h
dependency. The ajec o y ha is go e ned by he accumula ion o asse s and liabili ies
is, p ac ically, a sequence o sho - un ou comes ha dic a e u u e lows (e Sil a/San os
2011; Zezza/Zezza 2019). The es de ining ea u es o he SFC models, whe he heo-
e ical o empi ical, a e oo ed mainly in he Pos -Keynesian adi ion.
2.1 S uc u e and scope
Canelli e al. (2021) di ide he empi ical SFC models in o wo g oups, he heo y-d i en
and he da a-d i en. In his pape , I ake a di e en ou e and di ide models acco ding o
he complexi y o hei s uc u e, he numbe o ins i u ional sec o s and he amoun o
inancial and physical asse s. This u he allows di iding empi ical SFC models in o h ee
ypes, namely, he NC ype, which agg ega es households, i ms and banks in one sec o ;
he Godley and La oie ype, which ea s sepa a ely he s anda d ins i u ional sec o s; and
he HC ype, which is cha ac e ised by g ea he e ogenei y.
I is logically cohe en o a gue ha mo e complex s uc u es a e usually heo y-d i en,
hough his need no always be he case. Fo ins ance, he model o he Ne he lands
(Meije s/Muysken 2022) has a complex inancial s uc u e as he Du ch economy is hea -
ily inancialised, while he model o Colombia (Godin e al. 2023) has a la ge se o
inancial asse s due o he impo ance o bo owing in o eign cu ency. In bo h cases, he
complexi y is imposed by he ac ual ci cums ances and no by he heo y.
None heless, highe complexi y bea s a cos in e ms o he model i ing ac ual da a.
No many cases e iewed in his pape p o ide in-sample p ojec ions. F om he a ailable
da a, i occu s ha , in hei as majo i y, models i qui e well da a o he eal side o he
economy bu miss he inancial side. This could be a ibu ed o a numbe o easons:
(a) he use o di e en da a se s ha a e no en i ely consis en wi h na ional accoun s
da a; (b) di icul ies in modelling capi al gains, which a e o highe equency, mo e s o-
chas ic and ola ile; (c) highe sensi i i y o mo e complex models o pa ame e changes;
(d) closu es and assump ions on esiduals ha a e usually associa ed wi h he beha iou o
he inancial sec o ; and (e) beha iou al amewo ks, such as Tobinesque ules and accom-
moda i e banks, which a e no sui able o he economy a hand.
Table 1 p esen s some main cha ac e is ics o he h ee ypes o empi ical SFC models.
The majo i y o hem has a highly complex s uc u e, and om he median yea o pub-
lica ion, i seems ha HC models a e mo e ecen and p e e able. The a e age numbe o
sec o s and inancial and physical capi al asse s ensu e he alidi y o he di ision applied
in his pape . On a e age, he numbe o asse s is doubled be ween he NC and GL mod-
els. The same is he di e ence be ween he GL and HC models. Rega ding he sec o s, on
a e age NC models u ilise a minimum se , he GL models make use o he i e s anda d
4 . Fo ins ance, in he o me DSGE model o he Eu opean Commission (Ra o e al. 2009),
any discussion abou money holdings is uled ou by assump ion as po olio choices adjus o he
in e es a e ule. In bo h e sions o he DSGE model o he ECB (Gomes e al. 2012, Bokan
e al. 2018), he balance shee o non-liquidi y cons ained households is also consis ed o s a e-
con ingen secu i ies, which abso b he disc epancies om agen s’ op imal decisions on o he asse
holdings and ha e no u he impac on hei spending beha iou , o hei po olio choice. The
s ock- o- low eedback e ec is mu ed.
Eu opean Jou nal o Economics and Economic Policies: In e en ion, Vol. 22 No. 3304
Jou nal compila ion © 2025 Edwa d Elga Publishing L d
© 2025 The Au ho
ins i u ional sec o s, while models ha a e mo e complica ed in eg a e sligh ly mo e sec-
o s, ei he in he p oduc ion o in he inancial domain.
Table 2 p esen s he scope(s) o each ype o model as epo ed by he espec i e
au ho (s). The scope o he model usually de ines i s s uc u e. Fo ins ance, medium-
e m p ojec ions a e ca ied ou h ough NC models, while inancialisa ion and g een
ansi ion dynamics necessi a e he examina ion o mo e complex dynamics and ans-
mission mechanisms. The e o e, HC models a e mo e sui able o his ask. The GL
models ha e a compa a i ely mo e gene ic s uc u e and i da a well; hus, hese models
a e mul i-pu posed.
2.2 Empi ical o m and es ima ion
In he majo i y o he empi ical SFC models, he beha iou al equa ions a e es ima ed
econome ically. The mos ypical empi ical o m is he e o co ec ion, as i is ully com-
pa ible wi h he unde lying mechanism o SFC models, acco ding o which s ock– low
no ms do no de ia e o a long ime away om hei long- e m alues and he s eady-
s a e g ow h.5 Fo ins ance, in he Le y model o G eece (Papadimi iou e al. 2013) he
p i a e expendi u e, which is a ypical ea u e o he NC app oach, is es ima ed econo-
me ically and depends on i s long- e m ela ion wi h he disposable income o he p i a e
sec o , i s lagged accumula ed inancial weal h, household c edi and capi al gains, as well
as on he espec i e e o co ec ion e ms. The o mula ion is e y simila in es ima ed–
calib a ed HC models. Fo example, in he con inuous- ime model o Colombia (Godin
e al. 2023), households i s decide on a a ge le el o consump ion, based on hei dis-
posable income, weal h and new c edi . The a ge is equi alen o he long- e m ela ion
in he NC model. Then households adjus hei cu en consump ion o he a ge ed one,
which is also equi alen o he e o co ec ion e m in he NC model.
5 . Fo a de ailed discussion, see Zezza (2013).
Table 1 Empi ical s ock– low consis en models by ype and main cha ac e is ics
Type
Numbe o
models
Median yea o
publica ion
A e age
inancial asse s
A e age capi al
asse s
A e age
sec o s
NC 7 1999 4 1 3
GL 8 2019 6 2 5
HC 13 2022 11 4 6
No e: NC, New Camb idge; GL, Godley and La oie; HC, High Complexi y.
Table 2 Empi ical s ock– low consis en models by ype and scope
Type IM MTP FMF FID FIN GT
NC 5 3 1 1 … …
GL 3 1 7 … … …
HC 3 … 6 1 2 5
No e: IM, ex e nal o sec o imbalances; MTP, medium- e m p ojec ions; FMF, iscal, mone a y o
inancial ope a ions; FID, unc ional income dis ibu ion; FIN, inancialisa ion; GT, g een ansi ion.
Empi ical s ock– low consis en models: e olu ion, cu en s a e and p ospec s 305
Jou nal compila ion © 2025 Edwa d Elga Publishing L d© 2025 The Au ho
In his cons ella ion, a nega i e shock is ensued by a g adual adjus men owa ds he
a ge o he long- e m alue, wi h he speed o adjus men depending also on he magni-
ude o he balance shee e ec , o example, he p esence o pa h-dependency. This does
no imply ha he long- e m coe icien s ac necessa ily as a ac o s in an equilib ium
sense, bu a he as long- e m endencies, which, howe e , could be subjec o s uc u al
changes a any poin in ime. Figu e 1 p esen s wo examples o opposi e cases, namely
he weal h- o-income a ios o Ge many and G eece o he pe iod be ween 1995 and
2022. In he case o Ge many, he a io is ai ly s able a ound i s end, implying ha he
e o co ec ion e m could jus i y any g adual adjus men o he long- e m s uc u e.
In he case o G eece, he p esence o a s uc u al b eak is clea ly e iden in 2007. The
end be o e he b eak has been nega i e, while a e 2007 he s ock– low no m luc ua es
a ound ze o, no in a homoscedas ic manne .
SFC models do no impose equilib ium condi ions, and o his eason, hey a e able
o ace imbalances and unsus ainable condi ions. In o de o do so, he e is a equi emen
o a cons an e-e alua ion o s abili y condi ions. The esea che ough o ca e ully bal-
ance be ween he s abili y o he model, o example, espond o Lucas’ c i ique h ough
coin eg a ing ela ions, and he s abili y o he economy unde examina ion, o example,
a oid e godici y ha migh be imposed by he coin eg a ing ela ions, which in he eal
wo ld a e always subjec o change.
A inal no e in he es ima ion o empi ical models ela es o whe he he in oduc ion
o shocks, in o de o ca y ou policy assessmen s, ough o ake place in isola ion o o he
dynamics. The common p ac ice in all models discussed below is o in oduce shocks a e
he es ima ion o a baseline scena io. In his case, he possibili y ha unobse ed dynamics
a ec he policy ou come is pa icula ly high. In o de o add ess his issue, one would
i s ha e o es ima e a po en ial s eady s a e and hen in oduce he shock. None heless,
o he es ima ion o he s eady s a e he esea che would ei he ha e o a bi a ily impose
No e: Ne inancial weal h excludes he asse s and liabili ies o he cen al bank.
Sou ce: Own elabo a ion o Eu os a da a.
Figu e 1 Ne inancial weal h o disposable income a io o he p i a e sec o in Ge many
and G eece (1995–2022)
Eu opean Jou nal o Economics and Economic Policies: In e en ion, Vol. 22 No. 3306
Jou nal compila ion © 2025 Edwa d Elga Publishing L d
© 2025 The Au ho
long- e m condi ions o he cu en s a e o he economy o impose o he ad hoc ules. In
addi ion, a shock in he cu en s a e o he economy migh be biased due o he p esence
o unobse ed dynamics, bu he policy ou comes a e ai ly consis en wi h he condi ions
ha p e ail a he speci ic poin in ime, in which he shock has been in oduced. Simply
pu , a shock a ime yields a biased ou come, due o he p esence o unobse ed dynam-
ics. Howe e , assuming he implemen a ion o he policy a ime in a eal economy i s
o e all pe o mance would depend also on he unobse ed dynamics. The ac ual choice
on whe he o assume a s eady s a e o no depends on whe he he esea che aims o
highligh he p ope ies o he economy o i s pe o mance a a speci ic ime pe iod.
3 EMPIRICAL SFC MODELS
The p esen a ion o he h ee ypes o models pays pa icula a en ion on how he s uc-
u e o each ype o model is closely connec ed wi h i s scope, as s a ed by he au ho s.
Due o space limi a ion issues, he discussion is es ic ed o he desc ip ion o g oups o
models and no on a model- o-model basis, al hough, in some ins ances, i is less con-
enien o do so. Addi ionally, he sec ion examines he nexus be ween complexi y and
he goodness o i , condi ionally o he a ailabili y o in-sample p ojec ions ha allow
such a discussion. A ew ema ks a e in place. Fi s , he pe o mance o each model in he
in-sample p ojec ions la gely depends on whe he he simula ion is dynamic o s a ic. In
he o me case, he model makes use o he i s -pe iod da a and p o ides p ojec ions
based on he es ima ed coe icien s and he exogenous alues. In he s a ic simula ion, he
model makes use o he p e ious pe iod’s da a. In he dynamic simula ion, esiduals a e
accumula ing and he o e all pe o mance is expec ed o be poo e as compa ed o he
s a ic simula ion. Un o una ely, in he as majo i y o he pape s, he au ho s do no
p o ide any ele an in o ma ion. Second, ad hoc ules a e employed in o de o assess
he goodness o i . High pe o mance occu s when p ojec ions ollow he same end
wi h ac ual da a and hei disc epancy is i ial. Medium pe o mance is cha ac e ised by
ei he a disc epancy be ween he p ojec ed and ac ual da a ha does no exceed 2 pe cen
o GDP o he p ojec ions’ ends ollow a di e en pa h om he ac uals. The model
pe o ms poo ly i bo h ends a e di e en om hose o ac ual da a and he disc epancy
is la ge. Finally, he ollowing sec ion b ie ly p esen s some no able closu es applied in
each model.
3.1 Ma k I: New Camb idge
The main ea u e o he NC app oach is he agg ega ion o households, non- inancial and
inancial co po a ions in one sec o . In mos cases, his is e lec ed in an agg ega e p i a e
expendi u e unc ion, which ea s consump ion and in es men as one single a iable.
The la e ypically depends on he agg ega e p i a e sec o disposable income, ne inan-
cial weal h and o he inancial a iables.6 Gi en his o mula ion, one could ob ain s able
medium- e m s ock– low ela ions, which ansla e o a s able ne inancial weal h-dispos-
able income a io.7 This app oach was ini ia ed in he CEPG du ing he 1970s and has
6 . Fo u he de ails on he explana o y a iables, see o example C ipps e al. (1976).
7 . Fo a discussion on he necessi y o his o ma ion on beha iou al g ounds, see Fe he s on/
Godley (1978).
Empi ical s ock– low consis en models: e olu ion, cu en s a e and p ospec s 307
Jou nal compila ion © 2025 Edwa d Elga Publishing L d© 2025 The Au ho
been c i icized in bo h he Keynesian (Bispham 1975) and he Mone a is and Neoclassical
(Blinde 1978) domains.8
Table 3 summa ises he empi ical SFC models o he NC ype. In he majo i y o he
models, he sel - epo ed scope is o ace imbalances, based on he e olu ion o he sec-
o inancial balances. In addi ion, mos models a e used o medium- e m p ojec ions.
Conce ning he la e case, he ligh s uc u e in conjunc ion wi h he compa a i ely small
numbe o beha iou al equa ions implies ha he deg ees o eedom a e no es ic ed
signi ican ly and ha he model is expec ed o be less sensi i e o pa ame e changes.
Models wi h such a s anda dised o m include he model o he UK (C ipps/Godley
1976), he model o he US (Godley 1999) and he wo models o G eece (Papadimi iou
e al. 2013; Pie os 2021), e en hough he one model o G eece (Pie os 2021) ans-
o ms he p i a e expendi u e unc ion in o de o accoun o he impac o unc ional
income dis ibu ion on economic pe o mance. The es models a e a ia ions o he NC
app oach as hey ha e sepa a e consump ion and in es men unc ions, bu in he balance
shee o he model, he p i a e domes ic en i ies a e ea ed as one sec o . The sligh ly
di e en s uc u e o hese a ia ions is also e iden in hei scope, which is ei he mo e
gene ic o mo e sui able o examine speci ic ins abili y issues, such as he ola ili y o he
exchange a e in he case o A gen ina (Valdecan os 2022).
No many models p o ide in-sample p ojec ions. Bo h he models o G eece and
he one o A gen ina ha e a e y good i in e ms o na ional accoun da a. Rega ding
inancial da a, he one model o G eece (Pie os 2021) does no p o ide in-sample p o-
jec ions, while he o he (Papadimi iou e al. 2013) has a e y good i when es ima ing
inancial a iables a his o ic cos s bu no a g ea one conce ning ma ke cos s. Acco ding
o he au ho s, his is in la ge due o he combined use o di e en da a se s. The model
o A gen ina p o ides in-sample p ojec ions o sa ings as a p oxy o he eplica ion o
8 . Fo a de ailed exposi ion o he deba e ega ding he p i a e expendi u e unc ion, see Maloney
(2012) and Ma a (2012).
Table 3 Empi ical NC models
Au ho s Coun y Scope
Fi
No able closu e
Real Financial
C ipps/Godley
(1976)
UK IM/MTP N/A N/A P i a e sec o inancial
weal h
Da is
(1987a,b)
UK FMF N/A N/A P i a e sec o inancial
weal h
Godley/Zezza
(1992)
Denma k FMF Good N/A P i a e sec o weal h
Godley (1999) USA IM/MTP N/A N/A P i a e sec o inancial
weal h
Papadimi iou
e al. (2013)
G eece IM/MTP N/A Adequa e/
Good
P i a e sec o ne
ex e nal deb
Pie os (2021) G eece FID Good N/A P i a e sec o ne
ex e nal deb
Valdecan os
(2022)
A gen ina IM Good N/A P i a e sec o money
holdings
Eu opean Jou nal o Economics and Economic Policies: In e en ion, Vol. 22 No. 3308
Jou nal compila ion © 2025 Edwa d Elga Publishing L d
© 2025 The Au ho
inancial da a. The i is excellen bu i does no eplica e ac ual inancial a iables, in a
s ic sense.
Finally, in almos all cases he main closu e o he model is ela ed o he weal h o he
p i a e sec o . This ollows om he e y simple balance shee ha he majo i y o he
NC models u ilise. In his espec , he p i a e sec o weal h abso bs all he disc epancies.
The e a e mino a ia ions in his se -up. Weal h can be ei he inancial o o al as in he
case o Godley/Zezza (1992) and u he , i could be o al ne inancial weal h o is-à- is
he ex e nal sec o . A no able ex ension is he case o he model o A gen ina, which has a
iche s uc u e in e ms o he balance shee . In his pa icula case, money holdings clea
he po olio alloca ion o he p i a e sec o .
3.2 Ma k II: Godley and La oie
The publica ion o he book by Godley/La oie (2006), which cu en ly se es as he majo
ex book on heo e ical SFC models, has exposed analy ically how he s ock– low ela ions
a ec he beha iou o each o he i e s anda d ins i u ional sec o s and hei in e ac ion.
This ga e ise o a new gene a ion o empi ical SFC models, aiming o cap u e dynamics
emana ing om iche s uc u es as compa ed o he i s gene a ion. In e ms o he
demand componen s, consump ion and in es men s a e now de e mined sepa a ely, bu
in ad ance so a e he balance shee and he inancial balance o households and i ms.
Howe e , s uc u es ha a e mo e de ailed a e equally mo e demanding in e ms o da a.
The eby, da a a ailabili y cons ain s become mo e binding and he di icul y o con-
s uc ing om whom- o-who ma ices becomes much highe .
Almos all models, p esen ed in Table 4, ha e a a he mo e gene ic mac oeconomic
s uc u e and hus hey a e able o assess a la ge a ie y o iscal, mone a y and inancial
ope a ions. The only wo models ha examine e y speci ic esea ch ques ions a e he
model o Moldo a (Le He on/Yol 2019) and he model o Iceland (Raza e al. 2019).
Bo h a e in he educed o m. They a e clea ly heo y-d i en, in he sense ha i s he
s uc u e is de eloped in isola ion o he ac ual economy and hen he model is calib a ed
acco ding o ac ual da a.
Addi ionally o hei s uc u e, almos all models o he GL ype a e also hea ily in lu-
enced by he beha iou al amewo k o Godley/La oie (2006). This is e iden in he
Tobinesque po olio alloca ion o weal h, he beha iou o he banking sec o , which
holds an accommoda i e s ance, as well as in he cen al bank ope a ions, which clea
he bond ma ke . In he Icelandic model, his ole is held by he o eign sec o . A no a-
ble excep ion is made in he case o he model o I aly (Passa ella 2019) and he model
o Campania (Canelli e al. 2021), which, so a , is he only empi ical SFC model a
sub-na ional le el. Bo h models make use o he ‘O he inancial asse s’ i em o he inan-
cial accoun s as he a iable ha abso bs all disc epancies in he po olio alloca ion o
each ins i u ional sec o . This esembles he ole ha s a e-con ingen secu i ies hold in
he DSGE models. Howe e , a de imen al di e ence is he p esence o he s ock- o-
low eedback mechanism in he wo SFC models ha is he balance shee e ec in he
beha iou al equa ions. No e ha in he case o he UK model (Gudgin e al. 2015), he e
is a lack o in o ma ion ega ding he closu es o he model.
As in he case o he NC models, he e is limi ed p o ision o in-sample p ojec ions.
The models o he UK and Campania (Canelli e al. 2021) ha e an excellen i ega ding
he eal side o he economy, while he model o Moldo a misses he ac ual alues in
some speci ic a iables and o a limi ed pe iod. In b oad e ms, i p ojec s consis en ly
eal da a. Conce ning he inancial side, only he I alian models p o ide in-sample p ojec-
ions. The model o Passa ella (2019) eplica es he ne lending/bo owing posi ions o all
Empi ical s ock– low consis en models: e olu ion, cu en s a e and p ospec s 315
Jou nal compila ion © 2025 Edwa d Elga Publishing L d© 2025 The Au ho
Espagne, E., Ngo-Duc, T., Nguyen, M.-H., Pannie , E., Woillez, M.-N., D ogoul, A., Huynh,
T.P.L., Le, T. T., Nguyen, T.T.H., Nguyen, T. T., Nguyen, T. A., Thomas, F., T uong,
C.Q., Vo, Q. T., Vu, C. T. (2021): Clima e Change in Vie Nam; Impac s and Adap a ion.
A COP26 Assessmen Repo o he GEMMES Vie Nam P ojec , Pa is: Agence F ançaise de
Dé eloppemen .
Fe he s on, M. J., Godley, W. A. (1978): “New Camb idge” mac oeconomics and global mone a -
ism: some issues in he conduc o UK economic policy, in: Ca negie-Roches e Con e ence Se ies
on Public Policy, 9, 33–65.
Godin, A., Yilmaz, D., And ade, J., Ba bosa, S., Gue a a, D., He nandez, G., Rojas, L. (2023): Can
Colombia cope wi h a Global Low Ca bon ansi ion?, AFD Resea ch Pape s, No 285.
Godley, W. (1999): Se en unsus ainable p ocesses, Le y Economics Ins i u e NY, Special epo .
Godley, W., Zezza, G. (1992): A simple s ock low model o he Danish economy, in: Themes in
Mode n Mac oeconomics, London: Palg a e Macmillan UK.
Godley, W., La oie, M. (2006): Mone a y Economics: An In eg a ed App oach o C edi , Money,
Income, P oduc ion and Weal h, Be lin: Sp inge .
Gomes, S., Jacquino , P., Pisani, M. (2012): The EAGLE. A model o policy analysis o mac oeco-
nomic in e dependence in he eu o a ea, in: Economic Modelling, 29(5), 1686–1714.
Gudgin, G., Cou s, K. J., Gibson, N. (2015): The CBR Mac o-economic model o he UK
Economy (UKMOD), Cen e o Business Resea ch, Uni e si y o Camb idge, Wo king Pape ,
No 472.
He mi e, R. B., Cagnazzo, A., Fa e o, C. A., Felici, F., Macauda, V., Nucci, F., Tegami, C. (2023):
ITFIN: a s ock– low consis en model o he I alian economy, in: Economic Modelling, 119,
106113.
Jackson, T., Vic o , P. A. (2020): The ansi ion o a sus ainable p ospe i y – a s ock– low-consis en
ecological mac oeconomic model o Canada, in: Ecological Economics, 177, 106787.
Jacques, P., Delannoy, L., And ieu, B., Yilmaz, D., Jeanma , H., Godin, A. (2023): Assessing he
economic consequences o an ene gy ansi ion h ough a biophysical s ock– low consis en
model, in: Ecological Economics, 209, 107832.
Kalecki, M. (2013): Theo y o Economic Dynamics, London: Rou ledge.
Kinsella, S., Tiou-Tagba Ali i, G. (2012): Towa ds a s ock low consis en model o I eland, a ailable
a SSRN 2011462
La oie, M. (2022): Pos -Keynesian Economics: New Founda ions, Chel enham, UK and No hamp on,
MA: Edwa d Elga Publishing.
Le He on, E., Yol, N. (2019): The mac oeconomic e ec s o mig an s’ emi ances in Moldo a:
a s ock– low consis en model, in: Eu opean Jou nal o Economics and Economic Policies:
In e en ion, 16(1), 31–54.
Maloney, J. (2012): The easu y and he new Camb idge school in he 1970s, in: Camb idge Jou nal
o Economics, 36(4), 997–1017.
Ma a, T. (2012): Godley mo es in mys e ious ways: he c a o economic judgmen in pos -wa
B i ain, in Con ibu ions in S ock-Flow Modeling: Essays in Hono o Wynne Godley, London:
Palg a e Macmillan UK.
Mazie , J., Reyes, L. (2022): A s ock low consis en model o he F ench economy, in: Mac o-
Modelling, Economic Policy and Me hodology: Economics a he Edge, London: Rou ledge.
Meije s, H., Muysken, J. (2022): The mac oeconomic implica ions o inancialisa ion on he weal h
dis ibu ion-a s ock- low consis en app oach, UNU-MERIT, Wo king Pape , No 2022-035.
Michelena, G. (2021): Un modelo dinámico S ock Flujo pa a la economía A gen ina, Cen al Bank
o A gen ina, Economic Resea ch Wo king Pape s, No 89.
Miess, M., Schmelze , S. (2016): Ex ension o he Empi ical S ock–Flow Consis en (SFC) Model
o Aus ia: implemen a ion o se e al asse classes, a de ailed ax sys em and explo a o y scena -
ios, Ins i u e o Ad anced S udies Vienna, Resea ch Repo , No 58.
Nguyen, T.T.H., Espagne, E., Reyes, L., T an, T.A.-D. (2023): Policy esponses o cope wi h
COVID-19 in Vie Nam: an empi ical s ock- low-consis en app oach, Asian De elopmen
Bank Ins i u e (ADBI), Wo king Pape , No 1359.
Niki o os, M., Zezza, G. (2018): S ock–Flow Consis en mac oeconomic models: a su ey, In Veneziani,
R. and Zampa elli, L. (eds.), Analy ical Poli ical, Economy, NJ, USA: John Wiley & Sons.
Eu opean Jou nal o Economics and Economic Policies: In e en ion, Vol. 22 No. 3316
Jou nal compila ion © 2025 Edwa d Elga Publishing L d
© 2025 The Au ho
Papadimi iou, D. B., Zezza, G., Niki o os, M. (2013): A Le y Ins i u e Model o G eece, Le y
Economics Ins i u e NY, Technical Pape , May 2013.
Passa ella, M. V. (2019): F om abs ac o conc e e: some ips o de eloping an empi ical s ock–
low consis en model, in: Eu opean Jou nal o Economics and Economic Policies: In e en ion,
16(1), 55–93.
Pie os, C. (2021): Assessing he in e nal de alua ion policy implemen ed in G eece in an empi ical
s ock‐ low consis en model, in: Me oeconomica, 72(4), 905–943.
Ra o, M., Roege , W., Veld, J. (2009): QUEST III: an es ima ed open-economy DSGE model o
he eu o a ea wi h iscal and mone a y policy, in: Economic Modelling, 26(1), 222–233.
Raza, H., Gudmundsson, B. R., Zoega, G., By ialsen, M. R. (2019): C ises and capi al con ols in
small open economies: a s ock– low consis en app oach, in: Eu opean Jou nal o Economics and
Economic Policies: In e en ion, 16(1), 94–133.
e Sil a, A.C.M., San os, C.H.D. (2011): Pee ing o e he edge o he sho pe iod? The Keynesian
oo s o s ock– low consis en mac oeconomic models, in: Camb idge Jou nal o Economics,
35(1), 105–124.
Valdecan os, S. (2021): G asping A gen ina’s G een ansi ion: insigh s om a s ock– low consis en
inpu –ou pu model, Aalbo g Uni e si y Business School, Wo king Pape , No 4.
Valdecan os, S. (2022): Endogenous exchange a es in empi ical s ock– low consis en models o
pe iphe al economies: an illus a ion om he case o A gen ina, in: Jou nal o Pos Keynesian
Economics, 45(4), 636–666.
Yilmaz, D., Ben-Nas , S., Man es, A., Ben-Khali a, N., Dagha i, I., Godin, A. (2023): Clima e
change, loss o ag icul u al ou pu and he mac o-economy: he case o Tunisia, AFD, Resea ch
Pape s, No 286.
Zezza, G. (2013): Income dis ibu ion and bo owing: acking he US economy wi h a ‘New
Camb idge’ model, in B ancaccio, E., Fon ana, G. (eds), The Global Economic C isis, London:
Rou ledge.
Zezza, G., Zezza, F. (2019): On he design o empi ical s ock– low consis en models, in: Eu opean
Jou nal o Economics and Economic Policies: In e en ion, 16(1), 134–158.
Zezza, F., Zezza, G. (2022): A s ock- low consis en qua e ly model o he I alian economy, in
Mac oeconomic Modelling, Economic Policy and Me hodology, London: Rou ledge.
