Financial structure, cycle, and instability

Kenshiro Ninomiya

Journal of Economic Structures, 2022, vol. 11, issue 1, 1-23

Abstract: Abstract The subprime loan mortgage crisis has revived scholarly interest in Minsky’s financial instability hypothesis. The related mathematical models present two types of Minskian financial structures. We construct macrodynamic models that consider both structures and discuss financial instability and cycles. We also demonstrate that one of the financial cycles occurs when a real factor stabilizes the economy. The burden of interest-bearing debt is an important determinant of the cycle. We posit that the escalating financial fragility in this cycle is a more appropriate interpretation of the Minskian financial structure that refers to hedging, speculative and Ponzi behaviors. We further demonstrate that another financial structure destabilizes the economy. If the instability occurs at the point of fragility, then the economy may deteriorate into financial crisis. Fragility then becomes instability.

Keywords: Minskian financial structure; Financial fragility; Business cycle; Financial instability (search for similar items in EconPapers)
JEL-codes: E12 E32 E43 (search for similar items in EconPapers)
Date: 2022
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Working Paper: Financial Structure, Cycle, and Instability (2017)
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DOI: 10.1186/s40008-022-00275-7

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