A CYCLICAL MODEL FOR POSTWAR U.S. FINANCIAL MARKETS.

This financial model is characterized by three broad features. First, the model presupposes that financial markets can be analyzed by means of the flow of dollars passing through them in much the same way that non financial markets are analyzed in models using flows like consumption and investment. As a result, the model places less emphasis than is usual on price variables such as interest rates and on stock variables such as the quantity of money or liquid assets. Secondly, the choice of variables for the model is somewhat pragmatic. The variables are mainly financial market flows with large year-to-year movements during the post-World War II period. Finally, the model as a whole is built up from its parts. A number of sub models are first developed for various sectors, each describing the basic financial behavior of the sector. The model deals with the annual flows through four broad financial markets federal obligations, corporate securities, bank loans, and mortgages-and also with the change in cash balances.