Debt, boom, bust: a theory of Minsky-Veblen cycles
Jakob Kapeller () and
Journal of Post Keynesian Economics, 2014, vol. 36, issue 4, 781-814
This article reflects on the economic development leading to the recent crisis and interprets this development as a series of events within a Minsky-Veblen cycle. To illustrate this claim we introduce conspicuous consumption concerns, as described by Veblen, into a stock-flow-consistent post Keynesian model and demonstrate that, under these conditions, a decrease in income equality leads to a corresponding increase in debt-financed consumption demand. Here Minskian dynamics come into play: if perceived economic stability causes banks' margins of safety to decrease sufficiently, increased credit demand is accommodated by credit supply giving rise to a debt-financed consumption boom. As the solvency of households decreases and interest rates move up, banks reduce lending, triggering household bankruptcies and, finally, a recession. What follows is a stable period of consolidation, where past debts are repaid, financial stability is regained and conspicuous consumption motives may gradually take over again. We illustrate this approach to the current crisis and its explanatory validity by extending our stock-flow-consistent model into a dynamic simulation.
References: Add references at CitEc
Citations: View citations in EconPapers (22) Track citations by RSS feed
Downloads: (external link)
Access to full text is restricted to subscribers.
Working Paper: Debt, Boom, Bust: A Theory of Minsky-Veblen Cycles (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:mes:postke:v:36:y:2014:i:4:p:781-814
Ordering information: This journal article can be ordered from
Access Statistics for this article
More articles in Journal of Post Keynesian Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().