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Using Wynne Godley’s Sectoral Balances Approach to Forecast the US Economy

As you may know, I now use the sectoral balances approach very heavily in looking at economic forecasting. The crux of the sectoral balances is that, from an accounting perspective, every sector’s deficit must be offset by an equal surplus in another sector of the economy. I think it is a very valued-added way of breaking down an economy because it allows one to aggregate different sectors of an economy at a level that makes sense given broad cyclical movements and to discern how those movements will impact not just one sector but other sectors of the economy as well. British economist Wynne Godley is the one who most effectively put this approach to practice and a recent interview with Jan Hatzius of Goldman Sachs highlights this fact.

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Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.