Scenarios GL06INSOUT#

The following scenarios are available by default for the GL06INSOUT model, corresponding to the experiments in Chapter 10 (2nd ed.) / Chapter 7 (1st ed.) of Godley & Lavoie (2006). The R sfcr reference names are given in parentheses.

Baseline#

The baseline scenario has the following exogenous values:

  • Real government spending \(g = 25\)

  • Bill rate \(r_b = 0.023\)

  • Bond yield \(r_{bl} = 0.027\)

All shocks fire at the scenario trigger period (default: period 50).

Scenario 1: Higher Target Inventory Ratio (INSOUT1)#

An increase in the target inventory-to-sales ratio baseline from \(\sigma_0 = 0.3612\) to \(\sigma_0 = 0.4\). Firms desire to hold a larger buffer of inventories relative to expected sales, which raises inventory investment and loan demand.

Scenario 2: Higher Government Spending (INSOUT2)#

An increase in real government spending from \(g = 25\) to \(g = 30\). This is the standard Keynesian fiscal expansion experiment, raising output, income, and government debt.

Scenario 3: Higher Reserve Requirements (INSOUT3)#

An increase in compulsory reserve ratios from \(\rho_1 = \rho_2 = 0.1\) to \(\rho_1 = \rho_2 = 0.2\). Higher reserve requirements tie up more bank funds in non-interest-bearing reserves, reducing the bank’s bill holdings and potentially triggering advances from the central bank.

Scenario 4: Wider Bank Liquidity Corridor (INSOUT4)#

An increase in the acceptable bank liquidity ratio bounds from \(bot = 0.02, top = 0.06\) to \(bot = 0.20, top = 0.24\). The wider corridor raises the bank’s target bill-to-deposit ratio, leading to higher bill holdings and reduced need for central bank advances.

Scenario 5: Lower Consumption Propensity (INSOUT5)#

A decrease in the propensity to consume out of income from \(\alpha_1 = 0.95\) to \(\alpha_1 = 0.80\). This paradox-of-thrift experiment reduces consumption on impact but leads to wealth accumulation that partially offsets the initial decline.

Scenario 6: Exogenous Increase in Inflation via Wage Target (INSOUT6)#

An increase in the real wage target constant from \(\Omega_0 = -0.32549\) to \(\Omega_0 = -0.2\). Workers demand a higher real wage, triggering a wage-price spiral that generates persistent inflation until the economy reaches a new steady state.

Scenario 7: Combined Wage Push and Interest Rate Increase (INSOUT7)#

A simultaneous increase in the real wage target (same as Scenario 6) and an increase in interest rates (\(r_b = 0.023 \to 0.03\), \(r_{bl} = 0.027 \to 0.039\)). This stagflation experiment shows the interaction between cost-push inflation and contractionary monetary policy.