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FINANCIAL INSTABILITY AND BUSINESS FLUCTUATIONS (SIMULATION, MACROECONOMICS, DYNAMO)
Abstract
This dissertation attempts to combine a wage-cost markup pricing (and income distribution) model with the work of Hyman Minsky on the effects of financial variables on aggregate demand. Specifically, an attempt is made to integrate the wage-cost markup pricing theory with Minsky's financial instability hypothesis to develop a coherent model of what Keynes referred to as ". . . a sudden collapse in the marginal efficiency of capital." (Keynes, 1936, p.315). This dissertation employs the system dynamics method of simulation modeling due to J. Forrester. The model offered makes use of the structural components which have been incorporated in a number of other (often large-scale) models of national and world economies (N. Forrester; N. Mass). The difference between this dissertation and previous similar projects lies in the emphasis on financial variables. Nathaniel Mass, for example, disputes the notion of capital investment as a causal factor in short cycles since the lags involved in the investment process are too long, in his judgment, to be involved in 4-6 year fluctuations. However, this involves two dubious assumptions: (a) This implies a questionable distinction between inventories and goods in process on the one hand and plant and equipment on the other (see Ayres); (b) It ignores the dual nature of investment, which creates income via the multiplier in the short run but also increases capacity in the long run (see Hicks). The current model will analyze the behavior of monetary flows in terms of their relations with monetary levels such as wages, debt and prices. The simulation experiments will examine the stability of the economic system with respect to random shocks. Additional runs will provide evidence regarding the effects of various policy regimes on systemic stability.
Subject Area
Economics
Recommended Citation
WEINEL, IVAN L, "FINANCIAL INSTABILITY AND BUSINESS FLUCTUATIONS (SIMULATION, MACROECONOMICS, DYNAMO)" (1985). ETD collection for University of Nebraska-Lincoln. AAI8602940.
https://digitalcommons.unl.edu/dissertations/AAI8602940