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Operative Theroretical Economic Models for Teaching and Research

In 2007, a book was published by Professors Wynne Godley and Marc Lavoie with the title Monetary Economics. An Integrated Approach to Credit, Money, Income, Production, and Wealth, that is founded upon the use of MODLER™ and both puts forward a particular Post-Keynesian perspective on economic theory and demonstrates the process of building integrated economic models of economies. The exposition starts with a small, purely pedagogic model, which is then progressively elaborated in the later chapters. Throughout the book the models are explained and demonstrated, using MODLER™ graphs. Databases, macro files and other aids are available that permit a reader to work through both the creation and simulation solution of each of the models. Separately, a workbook is in preparation that is designed to more specifically describe the way in which MODLER™ can be used effectively to create and solve models of this type. This workbook can be downloaded from the Learning Tools page of this website.

Earlier, the late Professor Godley taught an innovative senior level undergraduate macroeconomics seminar course at Barnard College of Columbia University that utilized the MODLER™ software and was based upon early draft chapters of the book. The seminar convened in a computer lab setting that provided each participant with a networked personal computer. Students also had copies of the software on personal notebook or desktop computers.

The course introduced the students to working examples of economic models. These particular models take the form of theoretical macroeconomic models, formed to express particular statements about macroeconomic phenomena. During the 12 week course, Professor Godley introduced the series of models, increasing in their complexity, that began with a simple 5 equation model that was progressively elaborated so as to finally provide an open model of an economy incorporating the usual range of sectoral characteristics for a national economy. Simulations of the models demonstrate the effect of particular assumptions about the form of money, consumption, investment, other demand and supply functions, and national accounting and other relationships, providing the student with a much better sense of how an economy might operate, given a particular set of inherent characteristics. During the course, Professor Godley demonstrated that certain of the models presented in popular economics textbooks actually exhibit behavioral characteristics sharply at variance with reality, yet that equally simple working models can be developed that do not conflict with what is observed in the real world.

In future years, macroeconomic courses worldwide may take the form of this course, which allows the participants to see directly how theoretical statements about an economy play out in a simulation setting, instead of requiring student to learn by rote. MODLER™ has been and is used as an economics and/or econometrics teaching tool in other universities in the Americas and Europe, including universities in Germany, Spain, and the UK.

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