A Simple Stock Flow Model of the Danish Economy

Abstract

This study describes the simple model of the Danish economy which we used for a course on macroeconomics in Aalborg during the winter of 1987–8. Our model differed from the conventional textbook IS-LM model in that it included, right from the start, a representation of stock (or balance sheet) variables which were consistently interrelated with flow variables. The statistical embodiment of the theoretical model constituted a useful introduction to economic statistics and the functional relationships were studied as part of an introduction to econometrics. The model as a whole was then simulated to discover something about how a real life economy works.

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We gratefully acknowledge substantial help from Ken Coutts, Helge Brink, Jan Fagerberg, Jack Johannesen, Jesper Jespersen, Tony Kristensen, David Newbery, and Steve Satchell. The usual disclaimer applies. We gratefully acknowledge financial assistance from the Leverhulme Trust.