Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of Dallas
Working Papers
Tobin lives: integrating evolving credit market architecture into flow of funds based macro-models
John V. Duca
John N. Muellbauer

After the global financial crisis, there is greater awareness of the need to understand the interactions between the financial sector and the real economy and hence the potential for financial instability. Data from the financial flow of funds, previously relatively neglected, are now seen as crucial to the data monitoring carried out by central banks. This paper revisits earlier efforts to understand financial-real linkages, such those of Tobin and the Yale School, and proposes a modeling framework for analysing the household flow of funds jointly with consumption. The consumption function incorporates household income, portfolios of assets and debt held at the end of the previous period, credit availability, and asset prices and interest rates. In a general equilibrium setting, these all have to be endogenised and since households make consumption and housing purchase decisions jointly with portfolio decisions, there is much to be gained in modeling a household sub-system of equations. Major evolutionary structural change – namely the evolving credit architecture facing households – is handled by our ‘Latent Interactive Variable Equation System’. A by-product is improved understanding of the secular decline in US saving rate, as well as of the household financial accelerator. Moreover, the models discussed in this paper offer new ways of interpreting data on credit, money and asset prices, which are crucial for central banks.

Download Full text
Cite this item
John V. Duca & John N. Muellbauer, Tobin lives: integrating evolving credit market architecture into flow of funds based macro-models, Federal Reserve Bank of Dallas, Working Papers 1307, 2013.
More from this series
Note: Published as: Duca, John and John Muellbauer (2014), "Tobin LIVES: Integrating Evolving Credit Market Architecture into Flow of Funds Based Macro-models," in A Flow of Funds Perspective on the Financial Crisis, Volume II: Macroeconomic Imbalances and Risks to Financial Stability, ed. Bernard Winkler, Ad van Riet and Peter Bull (New York: Palgrave MacMillian), 11-39.
JEL Classification:
Subject headings:
Keywords: Financial crises; Consumption (Economics); Credit control; Households - Finance
DOI: 10.24149/wp1307
For corrections, contact Amy Chapman ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal