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Debt and investment in the Keen model: a reappraisal of modelling Minsky

Author

Listed:
  • Antonin Pottier

    (MINES ParisTech, PSL Research University, CERNA – Centre for Industrial Economics, i3 UMR CNRS, Paris, France)

  • Adrien Nguyen-Huu

    (LAMETA – Montpellier Laboratory of Theoretical and Applied Economics, CNRS, INRA, SupAgro, University of Montpellier, France)

Abstract

We examine to what extent the Keen model (Keen 1995) is a faithful modelling of Minsky's financial instability hypothesis. We focus on debt, money, and debt-induced crisis. We propose a clear interpretation of the debt: households lend unconsumed income to firms to finance their investments, and money creation is not necessary. We offer a detailed description of the economic collapse and analyse its causes thanks to numerical experiments. The crisis is triggered by profits squeezed by wages and not by debt overhang. We test alternative assumptions on the investors' behaviour to show that behaviour at very low profits is fundamental. We conclude that the Keen crisis has few Minskyan flavours.

Suggested Citation

  • Antonin Pottier & Adrien Nguyen-Huu, 2017. "Debt and investment in the Keen model: a reappraisal of modelling Minsky," Review of Keynesian Economics, Edward Elgar Publishing, vol. 5(4), pages 631–647-6, October.
    • Handle: RePEc:elg:rokejn:v:5:y:2017:i:4:p631-647
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    Cited by:

    1. Bailly, Hugo & Mortier, Frédéric & Giraud, Gaël, 2024. "Empirical analysis of a debt-augmented Goodwin model for the United States," Structural Change and Economic Dynamics, Elsevier, vol. 70(C), pages 619-633.
    2. Matheus R. Grasselli & Adrien Nguyen-Huu, 2025. "From debt crises to financial crashes (and back): a stock-flow consistent model for stock price bubbles [De la crise de la dette au crash financier (et retour) : un modèle à cohérence stock-flux des bulles de prix d'actifs]," Working Papers hal-05544986, HAL.
    3. Giraud, Gaël & Grasselli, Matheus, 2021. "Household debt: The missing link between inequality and secular stagnation," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 901-927.
    4. Gaël Giraud & Matheus GRASSELLI, 2017. "The macrodynamics of household debt, growth, and inequality," Working Paper c15af656-d7a4-485c-867f-5, Agence française de développement.
    5. Edouard Dossetto & Christophe Chorro, 2022. "Building a global sensitivity analysis to quantify the robustness of macro-economic models," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-05559166, HAL.
    6. Bovari, Emmanuel & Giraud, Gaël & Mc Isaac, Florent, 2018. "Coping With Collapse: A Stock-Flow Consistent Monetary Macrodynamics of Global Warming," Ecological Economics, Elsevier, vol. 147(C), pages 383-398.
    7. Emmanuel Bovari & Gaël Giraud & Florent McIsaac, 2018. "Carbon Pricing and Global Warming: A Stock-flow Consistent Macro-dynamic Approach," Working Paper 0a6be926-7c78-4aba-a60b-6, Agence française de développement.
    8. Matheus R Grasselli & Alexander Lipton, 2018. "The Broad Consequences of Narrow Banking," Papers 1810.05689, arXiv.org.
    9. Gaël Giraud & Florent MCISAAC & Emmanuel BOVARI, 2018. "Coping with the Collapse: A Stock-Flow Consistent Monetary Macrodynamics of Global Warming - Updated version dated July 2017," Working Paper 987f5d77-9601-4865-9ce1-4, Agence française de développement.
    10. Hugo Bailly & Frédéric Mortier & Gaël Giraud, 2023. "Empirical analysis of a debt-augmented Goodwin model for the United States," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-04139954, HAL.
    11. Matheus R. Grasselli & Alexander Lipton, 2019. "The Broad Consequences Of Narrow Banking," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 22(01), pages 1-22, February.
    12. Matthieu Bordenave, 2023. "Global bioeconomic SFC model for the study of financial instabilities [Modèle bioéconomique SFC pour l'étude des instabilités financières]," Working Papers hal-03843040, HAL.
    13. Hugo Bailly & Frédéric Mortier & Gaël Giraud, 2023. "Empirical analysis of a debt-augmented Goodwin model for the United States," Working Papers hal-04139954, HAL.
    14. Kemp-Benedict, Eric, 2018. "Investing in a Green Transition," Ecological Economics, Elsevier, vol. 153(C), pages 218-236.

    More about this item

    Keywords

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    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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