Abstract for: ASD Macroeconomic Model of Japan on the Flow of Funds and National Accounts - Report on its Early Stage Development

This paper tries to report the early stage development of our ASD (accounting system dynamics) macroeconomic model of Japan. The model incorporates financial sectors to show that demand deposits or credits are created out of nothing or destroyed endogenously under the current fractional reserve banking system. To be specific, 15 macroeconomic sectors are consolidated to the model with more than 1300 variables by incorporating the Flow of Funds Accounts by the Bank of Japan. The difficulty we faced is that inflow and outflow data for financial transactions are not available and we are obliged to reconstruct all financial inflow and outflow transactions by our economic rationale. Our modeling purpose at this early stage is focused on the macroeconomic system structure that causedJapanese economic recession of two decades long despite of the quantitative easing (QE) policies. From the analysis of imported financial data to the model, we found a dramatic change in the roles of economic players; that is, credit creation roles have shifted from producers and households to the government, followed by accumulating debt crisis. Finally a partial optimization is successfully performed for the interpolation of real macroeconomic behaviors such as GDP, consumption, investment, price, prime rate, unemployment rate, employed labor, and population.