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Minsky's acceleration channel and the role of money

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Author Info
GREG HANNSGEN

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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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Publisher 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

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

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  15. Eric M. Leeper & Christopher A. Sims & Tao Zha, 1996. "What Does Monetary Policy Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1996-2), pages 1-78. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Greg Hannsgen, 2004. "Gibson's Paradox, Monetary Policy, and the Emergence of Cycles," Economics Working Paper Archive 410, Levy Economics Institute, The. [Downloadable!]
    Other versions:
  2. Eric Tymoigne, 2006. "Asset Prices, Financial Fragility, and Central Banking," Economics Working Paper Archive wp_456, Levy Economics Institute, The. [Downloadable!]
  3. Greg Hannsgen, 2006. "GibsonÕs Paradox II," Economics Working Paper Archive wp_448, Levy Economics Institute, The. [Downloadable!]
  4. Claudio H. Dos Santos, 2004. "A Stock-Flow Consistent General Framework for Minskyan Analysis of Closed Economics," Macroeconomics 0402028, EconWPA. [Downloadable!]
  5. Claudio dos Santos, 2004. "A Stock-Flow Consistent General Framework for Formal Minskyan Analyses of Closed Economies," Economics Working Paper Archive 403, Levy Economics Institute, The. [Downloadable!]
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