The Natural Instability of Financial Markets

Jan Kregel

Economics Working Paper Archive from Levy Economics Institute

Abstract: This paper contrasts the economic incentives implicit in the Keynes-Minsky approach to inherent financial market instability with the incentives behind the traditional equilibrium approach leading to market stability to provide a framework for analyzing the stability induced by the recent changes in bank regulation to modernize financial services and the evolution of financial engineering innovations in the U.S. financial system. It suggests that the changes that have occurred in the profit incentives for bank holding companies have modified the provision of liquidity to the financial system by banks, and the way credit assessment has moved from banks to other actors in the system. It takes the current experience in financial instability created by the expansion, through securitization, of the mortgage market as an example of these changes.

Date: 2007-12
New Economics Papers: this item is included in nep-fmk, nep-pke, nep-reg and nep-rmg
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Citations: View citations in EconPapers (26)

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