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>A COMPARATIVE ANALYSIS BETWEEN THE FINANCIAL INSTABILITY HYPOTHESIS AND THE MONETARY THEORY OF DEEP DEPRESSIONS FOR THE INTERWAR PERIOD: A NON-NESTED TEST OF HYPOTHESIS (BUSINESS CYCLES, ECONOMIC FLUCTUATIONS, DEBT DEFLATION).
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A COMPARATIVE ANALYSIS BETWEEN THE FINANCIAL INSTABILITY HYPOTHESIS AND THE MONETARY THEORY OF DEEP DEPRESSIONS FOR THE INTERWAR PERIOD: A NON-NESTED TEST OF HYPOTHESIS (BUSINESS CYCLES, ECONOMIC FLUCTUATIONS, DEBT DEFLATION).
The hypothesis that is tested in this study is: does the financial instability hypothesis contain sufficient information to reject the Friedman-Schwartz monetary model? Or, does the Friedman-Schwartz monetary model contain sufficient information to reject the financial instability model? This test of hypothesis is made using Pesaran's non-nested N(,1) test statistic.;Since Minsky does not give an explicit model detailing how expectations are formed, it is difficult to test the financial instability model. Thus, a learning model of expectation is developed in Chapter 5. In Chapter 6 this learning model is used as the analytic guide to interpret the three major depressions of the interwar period. Chapter 7 presents the Friedman-Schwartz story of the interwar period.;In Chapter 8 the financial instability hypothesis and the monetary theory of deep depression are give econometric form. The financial instability hypothesis is specified as a recursive system of simultaneous equations. The variables, specified for this model are of three types: expected expenditure flow variables, desired expenditure flow variables, and a confidence index. The monetary model is specified as a single equation whose sole explanatory variable is a distributed lag money variable.;The estimation results are presented in Chapter 9. The non-nested tests of hypothesis are discussed in Chapter 10. In addition to performing these tests on the estimated models of Chapter 9, non-nested tests are also made comparing simpler versions of each theoretical model. In total, eight non-nested tests of hypothesis are performed.;Each theoretical model is described in Chapter 2. Chapter 3 is a descriptive discourse of those policy reforms Minsky has so widely advocated. Chapter 4 is a critique of the financial instability hypothesis.
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