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The Natural Instability of Financial Markets

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  • Jan Kregel

Abstract

This paper contrasts the economic incentives implicit in the Keynes-Minsky approach to inherent financial market instability with the incentives behind the traditional equilibrium approach leading to market stability to provide a framework for analyzing the stability induced by the recent changes in bank regulation to modernize financial services and the evolution of financial engineering innovations in the U.S. financial system. It suggests that the changes that have occurred in the profit incentives for bank holding companies have modified the provision of liquidity to the financial system by banks, and the way credit assessment has moved from banks to other actors in the system. It takes the current experience in financial instability created by the expansion, through securitization, of the mortgage market as an example of these changes.

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  • Jan Kregel, 2007. "The Natural Instability of Financial Markets," Economics Working Paper Archive wp_523, Levy Economics Institute.
  • Handle: RePEc:lev:wrkpap:wp_523
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    Cited by:

    1. Lino Sau, 2013. "Instability and Crisis in Financial Complex Systems," Review of Political Economy, Taylor & Francis Journals, vol. 25(3), pages 496-511, July.
    2. Thomas Goda, 2013. "The role of income inequality in crisis theories and in the subprime crisis," Working Papers PKWP1305, Post Keynesian Economics Study Group (PKSG).
    3. Monica Hernandez, 2017. "An Unintended Consequence of Uncoordinated International Monetary Policy on Central America," Working Papers 1728, New School for Social Research, Department of Economics.
    4. Mornati, Fiorenzo & Becchio, Giandomenica & Marchionatti, Roberto & Cassata, Francesco, 2009. ""Quando l'economica italiana non era seconda a nessuno" Luigi Einaudi e la Scuola di Economia a Torino," CESMEP Working Papers 200910, University of Turin.
    5. Alberto Botta, 2011. "Fiscal Policy, Eurobonds and Economic Recovery: Some Heterodox Policy Recipes against Financial Instability and Sovereign Debt Crisis," Economics and Quantitative Methods qf1114, Department of Economics, University of Insubria.
    6. Leszek Kąsek & Marek Lubiński, 2010. "hyman," Contemporary Economics, University of Finance and Management in Warsaw, vol. 4(1), March.
    7. Carlos Parodi Trece, 2011. "Las crisis financieras: un marco conceptual," Chapters of Books,in: Carlos Parodi Trece (ed.), La primera crisis financiera internacional del siglo XXI, edition 1, volume 1, chapter 1, pages 15-76 Fondo Editorial, Universidad del Pacífico.
    8. Gökçer Özgür & Korkut A. Ertürk, 2008. "Endogenous Money in the Age of Financial Liberalization," Working Paper Series, Department of Economics, University of Utah 2008_06, University of Utah, Department of Economics.
    9. Bill Lucarelli, 2011. "The Economics of Financial Turbulence," Books, Edward Elgar Publishing, number 14252.
    10. Mediha Mezhoud & Asma Sghaier & Adel Boubaker, 2017. "The Impact of Internal Governance Mechanisms on the Share Price Volatility of Listed Companies in Paris Stock Exchange," Bulletin of Applied Economics, Risk Market Journals, vol. 4(1), pages 1-12.
    11. Yilmaz Akyuz, 2008. "Managing Financial Instability in Emerging Markets: A Keynesian Perspective," Working Papers 2008/4, Turkish Economic Association.
    12. DemIr, FIrat, 2009. "Capital Market Imperfections and Financialization of Real Sectors in Emerging Markets: Private Investment and Cash Flow Relationship Revisited," World Development, Elsevier, vol. 37(5), pages 953-964, May.
    13. Robert E. Prasch, 2010. "Bankers Gone Wild: The Crash of 2008," Chapters,in: Macroeconomic Theory and its Failings, chapter 11 Edward Elgar Publishing.
    14. Philip Arestis & Ajit Singh, 2010. "Financial globalisation and crisis, institutional transformation and equity," Cambridge Journal of Economics, Oxford University Press, vol. 34(2), pages 225-238, March.
    15. Robert E. Prasch, 2011. "After the Crash of 2008: Financial Reform in an Age of Plutocracy," Chapters,in: The Global Financial Crisis, chapter 9 Edward Elgar Publishing.
    16. 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.
    17. Iancu, Aurel, 2011. "Models of Financial System Fragility," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 230-256, March.

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