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Orthodox versus Heterodox (Minskyan) Perspectives of Financial Crises: Explosion in the 1990s versus Implosion in the 2000s

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  • Jesus Munoz

Abstract

Orthodox and heterodox theories of financial crises are hereby compared from a theoretical viewpoint, with emphasis on their genesis. The former view (represented by the fourth-generation models of Paul Krugman) reflects the neoclassical vision whereby turbulence is an exception; the latter insight (represented by the theories of Hyman P. Minsky) validates and extends John Maynard Keynes's vision, since it is related to a modern financial world. The result of this theoretical exercise is that Minsky's vision represents a superior explanation of financial crises and current events in financial systems because it considers the causes of financial crises as endogenous to the system. Crucial facts in relevant financial crises are mentioned in section 1, as an introduction; the orthodox models of financial crises are described in section 2; the heterodox models of financial crises are outlined in section 3; the main similarities and differences between orthodox and heterodox models of financial crises are identified in section 4; and conclusions based on the information provided by the previous section are outlined in section 5. References are listed at the end of the paper.

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Bibliographic Info

Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_695.

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Date of creation: Nov 2011
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Handle: RePEc:lev:wrkpap:wp_695

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Keywords: John Maynard Keynes; Hyman P. Minsky; Paul Krugman; Financial Crises; Financial Fragility; Asset Bubbles; Speculation;

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References

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  1. Reinhart, Carmen & Kaminsky, Graciela & Lizondo, Saul, 1998. "Leading Indicators of Currency Crises," MPRA Paper 6981, University Library of Munich, Germany.
  2. Friedman, Milton, 1966. "Essays in Positive Economics," University of Chicago Press Economics Books, University of Chicago Press, edition 0, number 9780226264035.
  3. Sebastian Edwards & Miguel A. Savastano, 1998. "The Morning After: The Mexican Peso in the Aftermath of the 1994 Currency Crisis," NBER Working Papers 6516, National Bureau of Economic Research, Inc.
  4. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  5. Aaron Tornell & Frank Westermann & Lorenza Martinez, 2004. "The Positive Link Between Financial Liberalization Growth and Crises," UCLA Economics Working Papers 834, UCLA Department of Economics.
  6. Martin S. Feldstein, 2003. "Economic and Financial Crises in Emerging Market Economies.An Overview of Prevention and Management," NBER Chapters, in: Economic and Financial Crises in Emerging Market Economies, pages 1-30 National Bureau of Economic Research, Inc.
  7. Guillermo A. Calvo, 2005. "Emerging Capital Markets in Turmoil: Bad Luck or Bad Policy?," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262033348, December.
  8. International Monetary Fund, 2002. "Financial Crises, Poverty, and Income Distribution," IMF Working Papers 02/4, International Monetary Fund.
  9. Gary A. Dymski, 2010. "Why the subprime crisis is different: a Minskyian approach," Cambridge Journal of Economics, Oxford University Press, vol. 34(2), pages 239-255, March.
  10. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
  11. Martin Feldstein, 2003. "Economic and Financial Crises in Emerging Market Economies," NBER Books, National Bureau of Economic Research, Inc, number feld03-1, July.
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