FINANCIAL MARKETS IN BUSINESS CYCLES: A SIMULATION STUDY.

This article is a sequel to an earlier study of postwar U.S. financial behavior. The earlier study presented a nineteen-equation quarterly model of supplies and demands in major financial markets. It included detailed discussion of individual supply and demand relationships, but it did not deal with the properties of the model as a whole. The present paper explores the properties of the complete model by means of a series of simulation runs. The article is in three parts following introduction. The first part is a brief and necessarily incomplete summary of the model. The second is the core of the article, a description of the simulation runs and an attempt to account for the principal results in terms of the relevant properties of the underlying equations. The final part contains a brief summary and some remarks on the uses of the simulation results. The simulations which have been discussed suggest a number of propositions about financial markets. these propositions are not intended as realistic predictions of how financial markets behave. They are a set of hypotheses about financial market behavior suggested by the underlying, exploratory model and abstracting from the effects of financial markets on markets for real goods and services.