Financial Instability and Effects of Monetary Policy

Toshio Watanabe ()
Additional contact information
Toshio Watanabe: Fukui Prefectural University, 4-1-1 Matsuoka-Kenjojima, Eiheiji-Town, Fukui 910-1195, Japan

Bulletin of Political Economy, 2020, vol. 14, issue 1, 117-145

Abstract: Keynes and Minsky emphasize the effects of instability in the financial markets. We represent bank behavior and household portfolio preferences explicitly and investigate monetary policy effects on economic stabilization. Our model comprises dynamic equations for both the debtcapital ratio and the interest rate monetary policy. We show that the economy becomes unstable when the equity demand from households is sensitive to the debt-capital ratio. Further, we indicate that it is hard to change an unstable state into a stable state by changing monetary policy alone. We point out the need for financial regulations to make central bank policy effective.

Keywords: Bank behavior; Debt-capital ratio; Minsky’s financial instability hypothesis; Monetary policy (search for similar items in EconPapers)
JEL-codes: E12 E44 E52 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://serialsjournals.com/abstract/37268_5-watanabe.pdf (application/pdf)
https://www.bulletinofpe.com/toshio-watanabe-20201 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:awu:journl:v:14:y:2020:i:1:p:117-145

Access Statistics for this article

More articles in Bulletin of Political Economy from Bulletin of Political Economy
Bibliographic data for series maintained by Maria Cristina Barbieri Goes ().