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Systemic financial fragility and the monetary circuit: a stock-flow consistent approach

  • Marco, Passarella

In the last few years, a number of scholars has referred to the crop of contributions of Hyman P. Minsky as required readings to understanding the tendency of the capitalist economies to fall into recurring crises. The so-called ‘financial instability hypothesis’ of Minsky relies, however, on very disputed assumptions. Moreover, Minsky’s analysis of capitalism must be updated on the basis of the deep changes which, during the last three decades, have concerned the world economy. In order to overcome these theoretical difficulties, section 2 of the paper deals with the analytical structure of the financial instability theory, showing why this latter cannot be regarded as a general theory of the business cycle. Sections 3, 4 and 5 deal with a simplified, but consistent, re-formulation of some of the most disputed aspects of Minsky’s theory by cross-breeding it with inputs from the ‘Circuitist’ approach and the current Post Keynesian literature. In sections 6 and 7 we analyze the impact of both capital-asset inflation and consumer credit on the financial ‘soundness’ of the economy, within a simplified stock-flow consistent monetary circuit model. Some concluding remarks are provided in the last part of the paper (section 8).

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 28498.

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Date of creation: 28 Jan 2011
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Handle: RePEc:pra:mprapa:28498
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  1. Wynne Godley & Dimitri B. Papadimitriou & Gennaro Zezza, 2007. "The U.S. Economy: What's Next?," Economics Strategic Analysis Archive sa_apr_07, Levy Economics Institute.
  2. 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.
  3. Passarella Marco, 2010. "The Paradox of Tranquility Revisited. A Lotka-Volterra Model of the Financial Instability," Rivista italiana degli economisti, Società editrice il Mulino, issue 1, pages 69-104.
  4. Soon Ryoo, 2009. "Long waves and short cycles in a model of endogenous financial fragility," UMASS Amherst Economics Working Papers 2009-03, University of Massachusetts Amherst, Department of Economics.
  5. Godley, Wynne, 1999. "Money and Credit in a Keynesian Model of Income Determination," Cambridge Journal of Economics, Oxford University Press, vol. 23(4), pages 393-411, July.
  6. Wynne Goldey & Marc Lavoie, 2007. "Fiscal policy in a stock-flow consistent (SFC) model," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 30(1), pages 79-100, October.
  7. repec:rie:review:v:15:y:2010:i:1:n:4 is not listed on IDEAS
  8. Marc Lavoie & Wynne Godley, 2000. "Kaleckian Models of Growth in a Stock-Flow Monetary Framework: A Neo-Kaldorian Model," Economics Working Paper Archive wp_302, Levy Economics Institute.
  9. Jan Kregel, 2008. "Minsky’s Cushions of Safety: Systemic Risk and the Crisis in the U.S. Subprime Mortgage Market," Economics Public Policy Brief Archive ppb_93, Levy Economics Institute.
  10. Lavoie, M. & Seccareccia, M., 1999. "Minsky's Financial Fragility Hypothesis: a Missing Macroeconomic Link?," Working Papers 9904e, University of Ottawa, Department of Economics.
  11. Jan Toporowski, 2008. "Minsky's 'induced investment and business cycles'," Cambridge Journal of Economics, Oxford University Press, vol. 32(5), pages 725-737, September.
  12. L. Randall Wray, 2008. "Financial Markets Meltdown: What Can We Learn from Minsky," Economics Public Policy Brief Archive ppb_94, Levy Economics Institute.
  13. Gennaro Zezza, 2004. "Some Simple, Consistent Models of the Monetary Circuit," Macroeconomics 0405006, EconWPA.
  14. cavalieri, duccio, 2003. "On the closure of the monetary circuit," MPRA Paper 43836, University Library of Munich, Germany.
  15. Claudio H. Dos Santos & Gennaro Zezza, 2008. "A Simplified, 'Benchmark', Stock-Flow Consistent Post-Keynesian Growth Model," Metroeconomica, Wiley Blackwell, vol. 59(3), pages 441-478, 07.
  16. Riccardo Bellofiore & Joseph Halevi & Marco Passarella, 2010. "Minsky in the ‘New’ Capitalism: The New Clothes of the Financial Instability Hypothesis," Chapters, in: The Elgar Companion to Hyman Minsky, chapter 4 Edward Elgar.
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