Martin Mayer (The Jerome Levy Economics Institute)
Abstract
The Asian crisis is a textbook case of the "financial instability hypothesis" first expressed in 1966 by the late Hyman Minsky. It began with what Minsky described as "the economics of euphoria:...The confident expectation of a steady stream of prosperity gross profits [produces a] willingness...to take what would have been considered in earlier times undesirable chances in order to finance the acquisition of additional capital goods...Those that supply financial resources live in the same expectational climate as those that demand them...An essential aspect of a euphoric economy is the construction of liability structures which imply payments that are closely articulated...to cash flows due to income production...Withdrawals on the supply side of financial markets may force demanding units that were under no special strain and were not directly affected by financial stringencies to look for new financing connections. An initial disturbance can cumulate through such third- party or innocent-party bystanders...Financial instability occurs whenever a large number of units resort to extraordinary sources for cash.
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Paper provided by EconWPA in its series Macroeconomics with number
9805015.
Length: 41 pages Date of creation: 02 Jun 1998 Date of revision: Handle: RePEc:wpa:wuwpma:9805015
Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 41; figures: included Contact details of provider: Web page: http://129.3.20.41
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