A simplified stock-flow consistent dynamic model of the systemic financial fragility in the 'New Capitalism'
In the last few years, many financial analysts and heterodox economists (but even some ‘dissenters’ among orthodox economists) have referred to the contribution of Hyman P. Minsky as fundamental to understanding the current crisis. However, it is well-known that the traditional formulation of Minsky’s ‘financial instability hypothesis’ shows serious internal logical problems. Furthermore, 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 and empirical troubles, this paper, first, introduces the reader to the ‘mechanics’ of the financial instability theory, according to the formulation of the traditional Minskian literature (section 2). Second, it shows ‘why’ Minsky’s theory cannot be regarded as a general theory of the business cycle (section 3). Third, the paper attempts to supply a simplified, but consistent, re-formulation of Minsky’s theory by inter-breeding it with inputs coming from the ‘New Cambridge’ theories and the current ‘formal Minskian literature’. The aim of this is to analyze the impact of both capital-asset inflation and consumer credit on the financial ‘soundness’ of the non-financial business sector (sections 4-7). Some concluding remarks are provided in the last part of the paper (section 8).
|Date of creation:||19 Jan 2011|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jan Toporowski, 2008. "Minsky's 'induced investment and business cycles'," Cambridge Journal of Economics, Oxford University Press, vol. 32(5), pages 725-737, September.
- 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.
- Riccardo Bellofiore & Joseph Halevi & Marco Passarella, 2010. "Minsky in the â€˜Newâ€™ Capitalism: The New Clothes of the Financial Instability Hypothesis," Chapters, in: The Elgar Companion to Hyman Minsky, chapter 4 Edward Elgar Publishing.
- 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.
- Marc Lavoie & Wynne Godley, 2000. "Kaleckian Models of Growth in a Stock-Flow Monetary Framework: A Neo-Kaldorian Model," Macroeconomics 0004049, EconWPA.
- 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.
- 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.
- 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.
- Alessandro Vercelli, 2011. "A Perspective on Minsky Moments: Revisiting the Core of the Financial Instability Hypothesis," Review of Political Economy, Taylor & Francis Journals, vol. 23(1), pages 49-67.
- Piero Ferri & Hyman P. Minsky, 1991.
"Market Processes and Thwarting Systems,"
Economics Working Paper Archive
wp_64, Levy Economics Institute.
- Graziani,Augusto, 2003. "The Monetary Theory of Production," Cambridge Books, Cambridge University Press, number 9780521812115, November.
- 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.
- Lavoie, Marc, 1996.
"Horizontalism, Structuralism, Liquidity Preference and the Principle of Increasing Risk,"
Scottish Journal of Political Economy,
Scottish Economic Society, vol. 43(3), pages 275-300, August.
- Lavoie, M, 1995. "Horizontalism, Structuralism, Liquidity Preference and the Principle of Increasing Risk," Working Papers 9513e, University of Ottawa, Department of Economics.
- 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.
- 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.
- Wynne Godley & Marc Lavoie, 2007.
"Fiscal Policy in a Stock-Flow Consistent (SFC) Model,"
Economics Working Paper Archive
wp_494, Levy Economics Institute.
- 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.
- 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.
- 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.
- L. Randall Wray, 2008. "Financial Markets Meltdown: What Can We Learn from Minsky," Economics Public Policy Brief Archive ppb_94, Levy Economics Institute.
- Lavoie, M. & Seccareccia, M., 1999.
"Minsky's Financial Fragility Hypothesis: a Missing Macroeconomic Link?,"
9904e, University of Ottawa, Department of Economics.
- 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.
- Wynne Godley, 1996. "Money, Finance and National Income Determination: An Integrated Approach," Economics Working Paper Archive wp_167, Levy Economics Institute.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:28499. 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: (Joachim Winter)
If references are entirely missing, you can add them using this form.