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Minsky's acceleration channel and the role of money

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  • GREG HANNSGEN

Abstract

Hyman Minsky suggested a possible channel through which monetary policy could affect the economy. He asserted that rising interest rates due to contractionary monetary policy compromised the balance sheets of firms that had financed long-term positions in illiquid assets with short-term borrowing. As interest rates rose, the debt service costs of a project increased relative to the present discounted value of its future revenue streams. A model based on Minsky's theory confirms its plausibility. The model also shows that anti-inflationary policy potentially destabilizes if used too aggressively. A vector autoregression analysis suggests that postwar U.S. data are consistent with Minsky's theory.

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Bibliographic Info

Article provided by M.E. Sharpe, Inc. in its journal Journal of Post Keynesian Economics.

Volume (Year): 27 (2005)
Issue (Month): 3 (April)
Pages: 471-489

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Handle: RePEc:mes:postke:v:27:y:2005:i:3:p:471-489

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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=109348

Related research

Keywords: endogenous money; Minsky�s financial fragility hypothesis; monetary policy; vector autoregression (VAR);

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References

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Cited by:
  1. Greg Hannsgen, 2004. "Gibson's Paradox, Monetary Policy, and the Emergence of Cycles," Economics Working Paper Archive wp_410, Levy Economics Institute.
  2. Claudio H. Dos Santos, 2004. "A Stock-Flow Consistent General Framework for Minskyan Analysis of Closed Economics," Macroeconomics 0402028, EconWPA.
  3. Greg Hannsgen, 2006. "Gibson's Paradox II," Economics Working Paper Archive wp_448, Levy Economics Institute.
  4. Matthew Greenwood-Nimmo & Artur Tarassow, 2013. "A Macroeconometric Assessment of Minsky’s Financial Instability Hypothesis," Macroeconomics and Finance Series 201306, Hamburg University, Department Wirtschaft und Politik.
  5. Eric Tymoigne, 2006. "Asset Prices, Financial Fragility, and Central Banking," Economics Working Paper Archive wp_456, Levy Economics Institute.

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