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From the Financial Instability Hypothesis to the theory of Capital Market Inflation: a structural interpretation of the sub-prime crisis

  • Eugenio Caverzasi


    (Department of Economics and Management, University of Pavia)

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    The aim of this paper is to develop a structural explanation of the subprime mortgage crisis, grounded on the combination of two apparently incompatible financial theories: the Financial Instability Hypothesis by Hyman P. Minsky and the theory of Capital Market Inflation by Jan Toporowski. The theoretical analysis - presented in the first part of the paper - will then be reproduced in a Stock Flow Consistent model, to test its coherence, both logical and with respect to stylized facts in the U.S. economy.

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    Paper provided by University of Pavia, Department of Economics and Management in its series DEM Working Papers Series with number 018.

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    Length: 50 pages
    Date of creation: Nov 2012
    Date of revision:
    Handle: RePEc:pav:demwpp:018
    Contact details of provider: Postal: Via S. Felice, 5 - 27100 Pavia
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    1. John V. Duca & John Muellbauer & Anthony Murphy, 2011. "House prices and credit constraints: making sense of the U.S. experience," LSE Research Online Documents on Economics 58441, London School of Economics and Political Science, LSE Library.
    2. Pascal Seppecher, 2012. "Monnaie endogène et agents hétérogènes dans un modèle stock-flux cohérent," Post-Print hal-01071391, HAL.
    3. Marc Lavoie, 2008. "Financialisation Issues in a Post-Keynesian Stock-flow Consistent Model," European Journal of Economics and Economic Policies: Intervention, Edward Elgar, vol. 5(2), pages 331-356.
    4. Eugenio Caverzasi & Antoine Godin, 2013. "Stock-flow Consistent Modeling through the Ages," Economics Working Paper Archive wp_745, Levy Economics Institute.
    5. Till van Treeck, 2007. "A Synthetic, Stock-Flow Consistent Macroeconomic Model of Financialisation," IMK Working Paper 06-2007, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    6. Dimitri Papadimitriou & L. Randall Wray, 1998. "The Economic Contributions of Hyman Minsky: varieties of capitalism and institutional reform," Review of Political Economy, Taylor & Francis Journals, vol. 10(2), pages 199-225.
    7. Özgür Orhangazi, 2007. "Financialization and Capital Accumulation in the Non-Financial Corporate Sector," Working Papers wp149, Political Economy Research Institute, University of Massachusetts at Amherst.
    8. �zlem Onaran & Engelbert Stockhammer & Lucas Grafl, 2011. "Financialisation, income distribution and aggregate demand in the USA," Cambridge Journal of Economics, Oxford University Press, vol. 35(4), pages 637-661.
    9. William C. Brainard & James Tobin, 1968. "Pitfalls in Financial Model-Building," Cowles Foundation Discussion Papers 244, Cowles Foundation for Research in Economics, Yale University.
    10. Gennaro Zezza, 2008. "U.S. growth, the housing market, and the distribution of income," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 30(3), pages 375-401, April.
    11. Paul Davidson, 2008. "Is the current financial distress caused by the subprime mortgage crisis a Minsky moment? or is it the result of attempting to securitize illiquid noncommercial mortgage loans?," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 30(4), pages 669-676, July.
    12. Amit Bhaduri, 2011. "A contribution to the theory of financial fragility and crisis," Cambridge Journal of Economics, Oxford University Press, vol. 35(6), pages 995-1014.
    13. Gary A. Dymski, 2010. "Why the subprime crisis is different: a Minskyian approach," Cambridge Journal of Economics, Oxford University Press, vol. 34(2), pages 239-255, March.
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