Minsky Financial Instability, Interscale Feedback, Percolation and Marshall-Walras Disequilibrium
AbstractWe study analytically and numerically Minsky instability as a combination of top-down, bottom-up and peer-to-peer positive feedback loops. The peer-to-peer interactions are represented by the links of a network formed by the connections between firms, contagion leading to avalanches and percolation phase transitions propagating across these links. The global parameter in the top-bottom, bottom-up feedback loop is the interest rate. Before the Minsky moment, in the Minsky Loans Accelerator stage, the relevant bottom parameter representing the individual firms micro-states is the quantity of loans. After the Minsky moment, in the Minsky Crisis Accelerator stage, the relevant bottom parameters are the number of ponzi units / quantity of failures, defaults. We represent the top-bottom, bottom-up interactions on a plot similar to the Marshal-Walras diagram for quantity-price market equilibrium (where the interest rate is the analog of the price). The Minsky instability is then simply emerging as a consequence of the fixed point (the intersection of the supply and demand curves) being unstable (repulsive). In the presence of network effects, one obtains more than one fixed point and a few dynamic regimes (phases). We describe them and their implications for understanding, predicting and steering economic instability.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1402.0176.
Date of creation: Feb 2014
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Publication status: Published in Accounting, Economics and Law. Volume 3, Issue 3, Pages 167-260, 2013
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- Solomon Sorin & Golo Natasa, 2013. "Minsky Financial Instability, Interscale Feedback, Percolation and Marshall–Walras Disequilibrium," Accounting, Economics, and Law, De Gruyter, vol. 3(3), pages 167-260, October.
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