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AS-AD model as a stock-flow consistent model

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  • Kim, Minseong

Abstract

This paper casts the AS-AD model as a decomposition of a stock-flow consistent (SFC) model with price-setting firms and output stock-flow norms into the price formation part (AS) and the rest (AD) of the economy. The AD curve is understood as possible output level solutions (Y) of the model for each given price level. The AS curve maps out a pricing strategy for each expected output demand. Where AS and AD curves intersect, stock-flow norms (targets) are exactly satisfied. The AS curve returns the price level from expected demand, and the AD curve determines the actual output level from the price level. Together, the AS-AD model gives us long-run analysis, having assumed equilibrium convergence. The SFC view of the AS-AD model frees us from profitability criticisms of AD schedule and affords the model of disequilibrium analysis that is free of inconsistencies.

Suggested Citation

  • Kim, Minseong, 2022. "AS-AD model as a stock-flow consistent model," OSF Preprints ceb2z_v1, Center for Open Science.
    • Handle: RePEc:osf:osfxxx:ceb2z_v1
    DOI: 10.31219/osf.io/ceb2z_v1
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