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Application of Minsky's Theory to State-Dominated Economies

Listed author(s):
  • Yulia Vymyatnina
  • Mikhail Pakhnin

The global financial crisis of 2007-2008, consequences of which continue to adversely affect the world economy, is often called a "Minsky crisis". A prominent American economist Hyman Philip Minsky studied capitalist economic system paying special attention to its major properties, in particular, instability and high importance of money. He developed a consistent way to explain the nature of economic crises, which, according to him, are generated through financial mechanisms. Minsky's financial instability hypothesis states that the fragility of financial system increases in periods of booms and thus crises arise from the very structure of business cycles. In this paper we give a short review of Minsky's ideas and show that the last financial crisis could be persuasively explained in the framework of financial instability hypothesis. Moreover, we provide the extension of Minsky's hypothesis and apply his insights to the "state-dominated economies". Interesting and vivid examples of such economies are modern Russian economy (characterized by weak institutions, resource curse and dominance of state-related companies in the financial as well as non-financial sectors) and planned economy of the Soviet Union. We analyze the financial crisis 2008-2009 in Russia and the breakdown of the USSR and argue that these events could be interpreted along Minsky's line of argument.

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Paper provided by European University at St. Petersburg, Department of Economics in its series EUSP Department of Economics Working Paper Series with number Ec-03/14.

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Length: 27 pages
Date of creation: 22 Aug 2014
Handle: RePEc:eus:wpaper:ec0314
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  1. Ben S. Bernanke, 2007. "The recent financial turmoil and its economic and policy consequences," Speech 326, Board of Governors of the Federal Reserve System (U.S.).
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  10. Frankel, Jeffrey A., 2010. "The Natural Resource Curse: A Survey," Scholarly Articles 4454156, Harvard Kennedy School of Government.
  11. Keen, Steve, 2013. "A monetary Minsky model of the Great Moderation and the Great Recession," Journal of Economic Behavior & Organization, Elsevier, vol. 86(C), pages 221-235.
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