A Minsky Crisis

Lance Taylor and Stephen O'Connell ()

The Quarterly Journal of Economics, 1985, vol. 100, issue Supplement, 871-885

Abstract: A model is developed to illustrate Hyman Minsky's financial crisis theories. A key assumption is that the level of wealth in the economy is determined mac-roeconomically, with the value of firms' assets responding to the state of confidence as reflected by discounted quasi rents on capital. The second assumption is that there is high substitutability between liabilities of firms and money in the public's portfolio. A downward shift in anticipated profits leads wealth to contract and the public to shift portfolio preferences toward money. Interest rates rise, leading to further dampening of expected profits, and a debt-deflation crisis can occur.

Date: 1985
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