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Institutional Prerequisites of Financial Fragility within Minsky's Financial Instability Hypothesis: A Proposal in Terms of 'Institutional Fragility'

  • Christine Sinapi

The relevancy of Minsky's Financial Instability Hypothesis (FIH) in the current (and still unfolding) crisis has been clearly acknowledged by both economists and regulators. While most papers focus on discussing to what extent the FIH or Minsky's Big Bank/Big Government interpretation is appropriate to explain and sort out the crisis, some authors have also emphasized the need to consider the institutional foundations of Minsky's work (Whalen 2007, Wray 2008, Dimsky 2010). The importance of institutions within the FIH was strongly emphasized by Minsky himself, who assigned them the function of constraining the development of financial fragility. Yet only limited literature has focused on the institutional aspects on Minsky's FIH. The reason for this may be that they were mainly dealt with by Minsky in his latest papers, and they have remained, to some extent, incomplete, unclear, and even ambiguous. In our view, a synthesis of Minsky's proposals, along with a clarification and theoretical justification, remains to be done. Our objective in this paper is to contribute to this theoretical project. It leads us to propose that the notion of "institutional fragility" can constitute a useful perspective to complement and justify the endogenous development of financial fragility within the FIH. Eventually, this view may contribute to the debate about international financial governance.

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Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_674.

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Date of creation: Jul 2011
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Handle: RePEc:lev:wrkpap:wp_674
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  1. Commons, John R., 1931. "Institutional Economics," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 21, pages 648-657.
  2. Dimitri B. Papadimitriou & L. Randall Wray, 1998. "The Economic Contributions of Hyman Minsky: Varieties of Capitalism and Institutional Reform," Macroeconomics 9802018, EconWPA.
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  12. Eric Nasica, 1997. "Comportements bancaires et fluctuations économiques: l'apport fondamental d'H.P. Minsky à la théorie des cycles endogènes et financiers," Post-Print halshs-00466545, HAL.
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