IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

The current financial crisis, monetary policy and Minsky's structural instability hypothesis

Listed author(s):
  • Domenica Tropeano

    (University of Macerata)

In the paper it is argued that Minsky's theory of financial fragility, interpreted as a the- ory of structural instability, is useful to interpret the current crisis. Structural instability means that a small event can change the qualitative characteristic of a system and thus even its dynamic properties. As Minsky wrote, beyond the uncertainty arising from ex- pected inflows and outflows what matters is the state of markets when people need to take positions in them. Before the financial crisis, though many agents were speculative and Ponzi ones, the extreme liquidity of the markets has allowed them to operate quietly for a long time. When the crisis exploded a tiny increase in the bankruptcy rate of mortgages caused the breakdown of the whole financial system. The qualitative change that followed in this case was the destruction of markets. Monetary policy had to use unusual tools in order to cope with this event. The Federal Reserve however has changed its operating procedures to overcome this problem to overcome this problem only late, as the financial crisis had already propagated to the real sector. Thus the paper concludes that the Federal Reserve did not perceive the potential danger for systemic stability of a huge unregulated short term money market and did not switch promptly enough to the new measures once the crisis started.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by Macerata University, Department of Finance and Economic Sciences in its series Working Papers with number 60-2010.

in new window

Date of creation: Apr 2010
Date of revision: Jun 2010
Handle: RePEc:mcr:wpdief:wpaper00060
Contact details of provider: Postal:
Via Crescimbeni, 20 -62100 Macerata

Phone: 0733.258.201
Fax: 0733.258.205
Web page:

More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:mcr:wpdief:wpaper00060. 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: (Silvana Tartufoli)

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.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.