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Is Minsky’s financial instability hypothesis valid?

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  • Sébastien Charles

Abstract

In this article I reassess the validity of Minsky’s financial instability hypothesis and the main criticism about its internal coherence. Starting from this fundamental objection, I study Minsky’s contribution within the scope of a highly simplified macro-model. It is shown that the financial instability hypothesis (increasing debt ratios during economic expansion) remains valid in numerous cases. It appears, amongst other things, that a sufficient fall in the retention rate reinforces Minsky’s conclusions, emphasising the destabilising role of shareholders in the distribution of net profits.

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  • Sébastien Charles, 2016. "Is Minsky’s financial instability hypothesis valid?," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 40(2), pages 427-436.
    • Handle: RePEc:oup:cambje:v:40:y:2016:i:2:p:427-436.
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    File URL: http://hdl.handle.net/10.1093/cje/bev022
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    Cited by:

    1. Toshio Watanabe, 2020. "Financial Instability and Effects of Monetary Policy," Bulletin of Political Economy, Bulletin of Political Economy, vol. 14(1), pages 117-145, June.
    2. Engelbert Stockhammer, 2019. "Coupling cycle mechanisms: Minsky debt cycles and the multiplier-accelerator," Working Papers PKWP1904, Post Keynesian Economics Society (PKES).
    3. Pintu Parui, 2022. "Corporate debt, endogenous dividend rate, instability and growth," Metroeconomica, Wiley Blackwell, vol. 73(2), pages 514-549, May.
    4. Maria Nikolaidi & Engelbert Stockhammer, 2017. "Minsky Models: A Structured Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1304-1331, December.
    5. Yannis Dafermos, 2018. "Debt cycles, instability and fiscal rules: a Godley–Minsky synthesis," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 42(5), pages 1277-1313.
    6. Eugenio Caverzasi & Daniele Tori, 2018. "The Financial Innovation Hypothesis: Schumpeter, Minsky and the sub-prime mortgage crisis," Working Papers PKWP1815, Post Keynesian Economics Society (PKES).
    7. Stockhammer, Engelbert & Calvert Jump, Robert & Kohler, Karsten & Cavallero, Julian, 2019. "Short and medium term financial-real cycles: An empirical assessment," Journal of International Money and Finance, Elsevier, vol. 94(C), pages 81-96.
    8. Maria Nikolaidi, 2017. "Three decades of modelling Minsky: what we have learned and the way forward," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 14(2), pages 222-237, September.
    9. KORKMAZ, Özge, 2017. "Is Minsky’S Instability Hypothesis Acceptable For The Relation Between Borrowing Rate And Profitability?," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 21(1), pages 6-27.
    10. Toshio Watanabe, 2021. "Reconsideration of the IS–LM model and limitations of monetary policy: a Tobin–Minsky model," Evolutionary and Institutional Economics Review, Springer, vol. 18(1), pages 103-129, April.

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