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Minsky Moments, Russell Chickens, and Gray Swans--The Methodological Puzzles of the Financial Instability Analysis

  • Alessandro Vercelli
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    The recent revival of Hyman P. Minsky's ideas among policymakers, economists, bankers, financial institutions, and the mass media, synchronized with the increasing gravity of the subprime financial crisis, demands a reappraisal of the meaning and scope of the "financial instability hypothesis" (FIH). We argue that we need a broader approach than that conventionally pursued, in order to understand not only financial crises but also the periods of financial calm between them and the transition from stability to instability. In this paper we aim to contribute to this challenging task by restating the strictly financial part of the FIH on the basis of a generalization of Minsky's taxonomy of economic units. In light of this restatement, we discuss a few methodological issues that have to be clarified in order to develop the FIH in the most promising direction.

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    File URL: http://www.levyinstitute.org/pubs/wp_582.pdf
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    Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_582.

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    Date of creation: Nov 2009
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    Handle: RePEc:lev:wrkpap:wp_582
    Contact details of provider: Web page: http://www.levyinstitute.org

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