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Minsky's acceleration channel and the role of money

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  • GREG HANNSGEN

Abstract

Hyman Minsky suggested a possible channel through which monetary policy could affect the economy. He asserted that rising interest rates due to contractionary monetary policy compromised the balance sheets of firms that had financed long-term positions in illiquid assets with short-term borrowing. As interest rates rose, the debt service costs of a project increased relative to the present discounted value of its future revenue streams. A model based on Minsky's theory confirms its plausibility. The model also shows that anti-inflationary policy potentially destabilizes if used too aggressively. A vector autoregression analysis suggests that postwar U.S. data are consistent with Minsky's theory.

Suggested Citation

  • Greg Hannsgen, 2005. "Minsky's acceleration channel and the role of money," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 27(3), pages 471-489.
    • Handle: RePEc:mes:postke:v:27:y:2005:i:3:p:471-489
    DOI: 10.1080/01603477.2005.11051450
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    Citations

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    Cited by:

    1. Greg Philip Hannsgen, 2021. "A Minimal Probabilistic Minsky Model: 3D Continuous-Jump Dynamics," Working Papers PKWP2026, Post Keynesian Economics Society (PKES).
    2. Matthew Greenwood-Nimmo & Artur Tarassow, 2013. "A Macroeconometric Assessment of Minsky’s Financial Instability Hypothesis," Macroeconomics and Finance Series 201306, University of Hamburg, Department of Socioeconomics.
    3. Greg Hannsgen, 2004. "Gibson’s Paradox, Monetary Policy, and the Emergence of Cycles," Macroeconomics 0407029, University Library of Munich, Germany.
    4. Greg Philip Hannsgen, 2021. "A Minimal Probabilistic Minsky Model: 3D Continuous-Jump Dynamics," Working Papers PKWP2102, Post Keynesian Economics Society (PKES).
    5. Claudio H. Dos Santos, 2004. "A Stock-Flow Consistent General Framework for Minskyan Analysis of Closed Economics," Macroeconomics 0402028, University Library of Munich, Germany.
    6. Linh N. Phan & Mario G. Beruvides & Víctor G. Tercero-Gómez, 2024. "Statistical Analysis of Minsky’s Financial Instability Hypothesis for the 1945–2023 Era," JRFM, MDPI, vol. 17(1), pages 1-18, January.
    7. Eric Tymoigne, 2006. "Asset Prices, Financial Fragility, and Central Banking," Economics Working Paper Archive wp_456, Levy Economics Institute.
    8. Greg Hannsgen, 2006. "Gibson's Paradox II," Economics Working Paper Archive wp_448, Levy Economics Institute.

    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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