Finance and Economic Breakdown: Modeling Minsky's 'Financial Instability Hypothesis.'

Keen, Steve (1995) Finance and Economic Breakdown: Modeling Minsky's 'Financial Instability Hypothesis.'. Journal of Post Keynesian Economics, 17(4), pp. 607-635. ISSN (print) 0160-3477

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Abstract

H. M. Minsky's financial instability hypothesis interpretation of Keynes's General Theory is outlined. Two stylized fact extensions are made to Goodwin's (1972) limit cycle model to incorporate the fundamentals of Minsky's hypothesis. The introduction of a 'real' finance sector converts Goodwin's stable system into a chaotic one, with the transition from stability to instability and breakdown determined by the level of interest rate and debt. A stylized government sector counterbalances capitalist tendencies towards euphoric investment and results in a cyclical but stable system. It is surmised that actual governments have developed away from this ideal of countercyclical behavior.

Item Type: Article
Research Area: Economics and econometrics
Faculty, School or Research Centre: Faculty of Arts and Social Sciences > School of Economics, History and Politics (from November 2012)
Depositing User: Steve Keen
Date Deposited: 10 Jul 2015 10:32
Last Modified: 10 Jul 2015 10:32
URI: http://eprints.kingston.ac.uk/id/eprint/30166

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