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

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  • Marco, Passarella

Abstract

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).

Suggested Citation

  • Marco, Passarella, 2011. "Systemic financial fragility and the monetary circuit: a stock-flow consistent approach," MPRA Paper 28498, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:28498
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    File URL: https://mpra.ub.uni-muenchen.de/28498/1/MPRA_paper_28498.pdf
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    References listed on IDEAS

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    1. Wynne Goldey & Marc Lavoie, 2007. "Fiscal policy in a stock-flow consistent (SFC) model," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 30(1), pages 79-100.
    2. Ryoo, Soon, 2010. "Long waves and short cycles in a model of endogenous financial fragility," Journal of Economic Behavior & Organization, Elsevier, vol. 74(3), pages 163-186, June.
    3. Graziani,Augusto, 2003. "The Monetary Theory of Production," Cambridge Books, Cambridge University Press, number 9780521812115, April.
    4. Brancaccio, Emiliano, 2008. "Solvency and Labour Effort in a Monetary Theory of Production," European Journal of Economic and Social Systems, Lavoisier, vol. 21(2), pages 195-211.
    5. 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.
    6. Gennaro Zezza, 2004. "Some Simple, Consistent Models of the Monetary Circuit," Macroeconomics 0405006, EconWPA.
    7. Claude Gnos & Louis-Philippe Rochon, 2011. "Credit, Money and Macroeconomic Policy. A Post Keynesian Approach," Post-Print halshs-01231787, HAL.
    8. L. Randall Wray, 2008. "Financial Markets Meltdown: What Can We Learn from Minsky," Economics Public Policy Brief Archive ppb_94, Levy Economics Institute.
    9. cavalieri, duccio, 2003. "On the closure of the monetary circuit," MPRA Paper 43836, University Library of Munich, Germany.
    10. Marc Lavoie & Mario Seccareccia, 2001. "Minsky's financial fragility hypothesis: a missing macroeconomic link?," Chapters,in: Financial Fragility and Investment in the Capitalist Economy, chapter 4 Edward Elgar Publishing.
    11. Marco Passarella, 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.
    12. 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, July.
    13. 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.
    14. 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.
    15. 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 Publishing.
    16. 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.
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    Cited by:

    1. Passarella, Marco, 2011. "The two-price model revisited. A Minskian-Kaleckian reading of the process of 'financialization'," MPRA Paper 32033, University Library of Munich, Germany.

    More about this item

    Keywords

    Financial Instability; Stock-Flow Consistency; Monetary Theory of Production;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • B50 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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