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A Perspective on Minsky Moments: Revisiting the Core of the Financial Instability Hypothesis

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  • Alessandro Vercelli

Abstract

This paper aims to bridge the gap between theory and facts on the so-called 'Minsky moments' by revisiting the financial instability hypothesis (FIH). We limit the analysis to the core of the FIH, that is, to its strictly financial part. The approach suggested here builds on Minsky's contributions revisited in the light of the subprime mortgage financial crisis. We start from a constructive criticism of the well-known Minskyan taxonomy of economic units (hedge, speculative, and Ponzi), and suggest a different approach that allows a continuous measure of the units' financial conditions. We use this alternative approach to account for the cyclical fluctuations of financial conditions that endogenously generate instability and fragility. We may thus suggest a precise definition of a Minsky moment as the starting point of a Minsky process, the phase of a financial cycle when many economic units suffer from both liquidity and solvency problems. Although the approach sketched here is very simple and requires extensions in many directions, we may draw from it a few policy insights on how to mitigate the financial cycle.

Suggested Citation

  • Alessandro Vercelli, 2011. "A Perspective on Minsky Moments: Revisiting the Core of the Financial Instability Hypothesis," Review of Political Economy, Taylor & Francis Journals, vol. 23(1), pages 49-67.
  • Handle: RePEc:taf:revpoe:v:23:y:2011:i:1:p:49-67
    DOI: 10.1080/09538259.2011.526293
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    References listed on IDEAS

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    Cited by:

    1. Passarella, Marco, 2012. "A simplified stock-flow consistent dynamic model of the systemic financial fragility in the ‘New Capitalism’," Journal of Economic Behavior & Organization, Elsevier, vol. 83(3), pages 570-582.
    2. Giampaolo Gabbi & Alesia Kalbaska & Alessandro Vercelli, 2014. "Factors generating and transmitting the financial crisis: The role of incentives: securitization and contagion," Working papers wpaper56, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    3. Nikolaidi, Maria, 2014. "Margins of safety and instability in a macrodynamic model with Minskyan insights," Structural Change and Economic Dynamics, Elsevier, vol. 31(C), pages 1-16.
    4. Hiroshi Nishi, 2016. "An empirical contribution to Minsky’s financial fragility:Evidence from non-financial sectors in Japan," Discussion papers e-16-007, Graduate School of Economics , Kyoto University.
    5. Leila E. Davis - Joao Paulo A. de Souza y Gonzalo Hernandez & Joao Paulo A. de Souza & Gonzalo Hernandez, 2017. "An empirical analysis of Minsky regimes in the US economy," VNIVERSITAS ECONÓMICA 015495, UNIVERSIDAD JAVERIANA - BOGOTÁ.
    6. Sordi, Serena & Vercelli, Alessandro, 2012. "Heterogeneous expectations and strong uncertainty in a Minskyian model of financial fluctuations," Journal of Economic Behavior & Organization, Elsevier, vol. 83(3), pages 544-557.
    7. Passarella, Marco, 2011. "From the village fair to Wall Street. The Italian reception of Minsky’s economic thought," MPRA Paper 49593, University Library of Munich, Germany.
    8. Greenwood-Nimmo, Matthew & Tarassow, Artur, 2016. "Monetary shocks, macroprudential shocks and financial stability," Economic Modelling, Elsevier, vol. 56(C), pages 11-24.
    9. Giulia Iori & Mauro Politi & Guido Germano & Giampaolo Gabbi, 2015. "Banks' Strategies and Cost of Money: Effects of the Financial Crisis on the European Electronic Overnight Interbank Market," Journal of Financial Management, Markets and Institutions, Società editrice il Mulino, issue 2, pages 179-202, December.
    10. Riccardo Bellofiore & Giovanna Vertova (ed.), 2014. "The Great Recession and the Contradictions of Contemporary Capitalism," Books, Edward Elgar Publishing, number 14637.
    11. Yannis Dafermos, 2015. "Debt cycles, instability and fiscal rules: a Godley-Minsky model," Working Papers 20151509, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
    12. Alessandro Vercelli, 2014. "Financial and nuclear meltdowns: the fragility of chain-reaction critical processes," Chapters,in: The Great Recession and the Contradictions of Contemporary Capitalism, chapter 12, pages 208-220 Edward Elgar Publishing.
    13. Giansante, Simone & Chiarella, Carl & Sordi, Serena & Vercelli, Alessandro, 2012. "Structural contagion and vulnerability to unexpected liquidity shortfalls," Journal of Economic Behavior & Organization, Elsevier, vol. 83(3), pages 558-569.
    14. Thomas Goda, 2017. "A comparative review of the role of income inequality in economic crisis theories and its contribution to the financial crisis of 2007-2009," REVISTA FINANZAS Y POLÍTICA ECONÓMICA, UNIVERSIDAD CATOLICA DE COLOMBIA, vol. 9(1), pages 151-174, February.

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