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Is Minsky’s Financial Instability Hypothesis Valid?

Author

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  • Sébastien Charles

    (LED - Laboratoire d'Economie Dionysien - UP8 - Université Paris 8 Vincennes-Saint-Denis)

Abstract

In this article I reassess the validity of Minsky's financial instability hypothesis and the main criticism about its internal coherence. Starting from this fundamental objection, I study Minsky's contribution within the scope of a highly simplified macro-model. It is shown that the financial instability hypothesis (increasing debt ratios during economic expansion) remains valid in numerous cases. It appears, amongst other things, that a sufficient fall in the retention rate reinforces Minsky's conclusions, emphasising the destabilising role of shareholders in the distribution of net profits.

Suggested Citation

  • Sébastien Charles, 2016. "Is Minsky’s Financial Instability Hypothesis Valid?," Post-Print halshs-01346440, HAL.
    • Handle: RePEc:hal:journl:halshs-01346440
    DOI: 10.1093/cje/bev022
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    Cited by:

    1. Engelbert Stockhammer, 2019. "Coupling cycle mechanisms: Minsky debt cycles and the multiplier-accelerator," Working Papers PKWP1904, Post Keynesian Economics Society (PKES).
    2. Toshio Watanabe, 2020. "Financial Instability and Effects of Monetary Policy," Bulletin of Political Economy, Bulletin of Political Economy, vol. 14(1), pages 117-145, June.
    3. Eugenio Caverzasi & Daniele Tori, 2018. "The Financial Innovation Hypothesis: Schumpeter, Minsky and the sub-prime mortgage crisis," LEM Papers Series 2018/36, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    4. Toshio Watanabe, 2021. "Reconsideration of the IS–LM model and limitations of monetary policy: a Tobin–Minsky model," Evolutionary and Institutional Economics Review, Springer, vol. 18(1), pages 103-129, April.
    5. Maria Nikolaidi & Engelbert Stockhammer, 2017. "Minsky Models: A Structured Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1304-1331, December.
    6. Pintu Parui, 2022. "Corporate debt, endogenous dividend rate, instability and growth," Metroeconomica, Wiley Blackwell, vol. 73(2), pages 514-549, May.
    7. Maria Nikolaidi, 2017. "Three decades of modelling Minsky: what we have learned and the way forward," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 14(2), pages 222-237, September.
    8. KORKMAZ, Özge, 2017. "Is Minsky’S Instability Hypothesis Acceptable For The Relation Between Borrowing Rate And Profitability?," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 21(1), pages 6-27.
    9. Yannis Dafermos, 2018. "Debt cycles, instability and fiscal rules: a Godley–Minsky synthesis," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 42(5), pages 1277-1313.
    10. Stockhammer, Engelbert & Calvert Jump, Robert & Kohler, Karsten & Cavallero, Julian, 2019. "Short and medium term financial-real cycles: An empirical assessment," Journal of International Money and Finance, Elsevier, vol. 94(C), pages 81-96.

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