Stock-Flow-Consistent Models and Institutional Variety (Vernon Economic Methodology)

Methodology usually irritates economists. They prefer to get on with the job and do structural economics. The term always means general equilibrium. The story is told of consumers and producers making choices about consumption, work, investment, and so on. The grand finale is clearing of all markets. The plot is essentially devoid of money and banking. The language, though, is flexible enough to incorporate these elements and post-financial crisis, the best minds have been hard at work stretching the script in order to do so.

We, on the other hand, hark back to another approach to structure that regards the economy as a whole as a set of interrelated real and monetary circuits. The principles at work are both logical (balance-sheet accounting) and historical (the economy in thrall to the rhythms of the cycle) and empirical (connections with national income statistics). We deal with identities. Consequently, they are incontrovertible. The relationships are connected by so-called stock-flow norms. These numbers can vary over time and space. Their uses are varied and will include ranges that they must fall within to ensure the stability of certain difference equation representations of our economies. In contrast, the community is used to norms imported or imposed from Basel or the IMF. Despite the popular connotations of the term 'accounting', the approach is fecund for proposing novel institutional practices to be transplanted into modern economies for welfare-maximizing ends. Their force is their origins in arithmetic. General equilibrium (anti-general equilibrium) tends to be strong on technique (critique) but weak when it comes to recommending non-trivial policy. Finally, most macroeconomists tend to think in closed-economy terms, the 'foreign' being the mirror of 'home'. What might be the connections between two institutionally varied economies that are thrown together by the dynamics of globalization?

Amelia Correa is the Head, Department of Economics, St Andrew's College, Mumbai. She has been waging battles introducing economics to armies of students since1984. In India, undergoing a perverse transition to full blown capitalism, she makes it her solemn duty to expose her pupils to the horrors of desperate poverty. Thus, she is instrumental in organizing a conference every year where reputed scholars and activists educate teachers and teach on the nuances of the food crisis, the land problem, labour and so on. Her research interests centered around financial arrangements that impact on poverty, resulting in MPhil and PhD dissertations on the subject. Her publications in this area include papers in the Journal of Interdisciplinary Economics and Applied Economics Letters. On the theme of the book, a paper in the World Review of Political Economy best represents her thinking.

Romar Correa works on the interface between micro and macroeconomics in non-neoclassical frameworks. As Reserve Bank of India Professor of Monetary Economics at the University of Mumbai, he delighted in using his freedom to critique policy making by the Central Bank of the country! He is not above using tools like game theory if it elucidates the political economy at hand. He has presented his work at conferences in India, France, Italy, Hong Kong and China. He has published extensively in a wide range of journals, including the Journal of Economic Integration, History of Economic Ideas, International Review of Applied Economics, Evolutionary and Institutional Economics Review, International Game Theory Review, economics e journal, American Review of Political Economy, International Journal of Social Economics.