The Long Road to Redemption

Abstract

All through his work on policy assessment and forecasting—on both sides of the Atlantic—after stepping down from the DAE, Godley has been working on the side to extend and improve the ideas that sank without trace in 1983. Helped by long collaborations with CEPG members who remained in Cambridge (notably Ken Coutts), and long correspondences with others (notably Treasury ex-colleague Brian Hopkin), what started as an improved second edition of Macroeconomics turns into a much wider project—building stock-flow consistent matrices which, allied to much-enlarged computing capacity, can simulate an economy, with a range of financial assets and differentiated public, household, corporate, bank and international sectors. The full pattern of stocks and flows takes years to work out and match to available data, with further time needed to work out the behavioural relationships that can realistically close the model. But with the help of Levy Institute colleagues in the late 1990s, remaining theoretical puzzles are worked out. A collaboration with Canadian post-Keynesian economist Marc Lavoie moves the project towards final completion in 2007, with an early offshoot enabling them to diagnose the built-in imbalance that will soon haunt Europe’s move to a single currency.