16. Monetary Economics and After

The publication in 2007 of Monetary Economics, which builds up a series of stock-flow consistent macro models that can chart the short-run dynamics and longer-term outcomes of policy changes and ‘shocks’, gives Godley closure on his two decades of work to model monetary systems realistically. The results presented by Godley and Lavoie demonstrate ‘Keynesian’ effects, showing how employment levels and growth rates may be demand-constrained even in the longer run, but leave scope for other behavioural closures. The launch of the book leads immediately to quests to write a shorter, more popular version, and to apply it to policy analysis. Unable to travel easily to the Levy Institute, Godley explores options for resuming a small research programme in Cambridge, before ill health forces him and Kitty to retreat to family homes in Suffolk and then Northern Ireland. Less than a year after the new book emerges, the USA is plunged into a global financial crash whose origins were fully spelt out in Godley’s analyses at the Levy Institute, which now places his work alongside Minsky’s as the foundation of its assessments. While still battling a resistant mainstream, he lives to see a new generation of post-Keynesian scholars take up and further develop the new approach.