IDEAS home Printed from https://ideas.repec.org/p/lev/wrkpap/wp_543.html
   My bibliography  Save this paper

Macroeconomics Meets Hyman P. Minsky: The Financial Theory of Investment

Author

Listed:
  • L. Randall Wray
  • Eric Tymoigne

Abstract

Expanding on an approach developed by financial economist Hyman Minsky, the authors of this new working paper present an alternative to the standard "efficient markets hypothesis"--the relevance of which Minsky vehemently denied. Minsky recognized that, in a modern capitalist economy with complex, expensive, and long-lived assets, the method used to finance asset positions is of critical importance, both for theory and for real-world outcomes—one reason his alternate approach has been embraced by Post Keynesian economists and Wall Street practitioners alike. Coauthors L. Randall Wray and Eric Tymoigne argue that the current financial crisis, which began with the collapse of the U.S. subprime mortgage market in 2007, provides a compelling reason to show how Minsky's approach offers us a solid grounding in the workings of financial capitalism. They examine Minsky's extension to Keynes's investment theory of the business cycle, which allowed Minsky to analyze the evolution, over time, of the modern capitalist economy toward fragility--what is well known as his financial instability hypothesis. They then update Minsky's approach to finance with a more detailed examination of asset pricing and the evolution of the banking sector, and conclude with a brief review of the insights that such an approach can provide for analysis of the current global financial crisis.

Suggested Citation

  • L. Randall Wray & Eric Tymoigne, 2008. "Macroeconomics Meets Hyman P. Minsky: The Financial Theory of Investment," Economics Working Paper Archive wp_543, Levy Economics Institute.
  • Handle: RePEc:lev:wrkpap:wp_543
    as

    Download full text from publisher

    File URL: http://www.levyinstitute.org/pubs/wp_543.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Shiller, Robert J & Boycko, Maxim & Korobov, Vladimir, 1991. "Popular Attitudes toward Free Markets: The Soviet Union and the United States Compared," American Economic Review, American Economic Association, pages 385-400.
    2. Koford, Kenneth J. & Miller, Jeffrey B., 1991. "The natural rate and adjustment to shocks in an efficiency-wage share economy," Journal of Macroeconomics, Elsevier, pages 299-316.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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. Chiarella, Carl & Di Guilmi, Corrado, 2011. "The financial instability hypothesis: A stochastic microfoundation framework," Journal of Economic Dynamics and Control, Elsevier, pages 1151-1171.
    3. Leszek Kąsek & Marek Lubiński, 2010. "hyman," Contemporary Economics, University of Finance and Management in Warsaw.
    4. Ognjen Radonjić & Miodrag Zec, 2010. "Subprime Crisis and Instability of Global Financial Markets," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, pages 209-224.
    5. Bill Lucarelli, 2011. "The Economics of Financial Turbulence," Books, Edward Elgar Publishing, number 14252, September.
    6. Daniel Detzer, 2012. "New instruments for banking regulation and monetary policy after the crisis," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 9(2), pages 233-254.
    7. Sheila Dow, 2009. "History of Thought and Methodology in Pluralist Economics Education," International Review of Economic Education, Economics Network, University of Bristol, pages 41-57.
    8. Edgardo Bucciarelli & Marcello Silvestri, 2013. "Hyman P. Minsky's unorthodox approach: recent advances in simulation techniques to develop his theoretical assumptions," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 36(2), pages 299-324.
    9. Sunanda Sen, 2011. "The Global Crisis and the Remedial Actions: A Nonmainstream Perspective," Economics Working Paper Archive wp_677, Levy Economics Institute.
    10. repec:eee:rujoec:v:1:y:2015:i:4:p:419-438 is not listed on IDEAS
    11. Marco, Passarella, 2011. "Systemic financial fragility and the monetary circuit: a stock-flow consistent approach," MPRA Paper 28498, University Library of Munich, Germany.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lev:wrkpap:wp_543. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Elizabeth Dunn). General contact details of provider: http://www.levyinstitute.org .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.