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Application of Minsky's Theory to State-Dominated Economies

Yulia Vymyatnina and Mikhail Pakhnin

No 2014/03, EUSP Department of Economics Working Paper Series from European University at St. Petersburg, Department of Economics

Abstract: The global financial crisis of 2007-2008, consequences of which continue to adversely affect the world economy, is often called a "Minsky crisis". A prominent American economist Hyman Philip Minsky studied capitalist economic system paying special attention to its major properties, in particular, instability and high importance of money. He developed a consistent way to explain the nature of economic crises, which, according to him, are generated through financial mechanisms. Minsky's financial instability hypothesis states that the fragility of financial system increases in periods of booms and thus crises arise from the very structure of business cycles. In this paper we give a short review of Minsky's ideas and show that the last financial crisis could be persuasively explained in the framework of financial instability hypothesis. Moreover, we provide the extension of Minsky's hypothesis and apply his insights to the "state-dominated economies". Interesting and vivid examples of such economies are modern Russian economy (characterized by weak institutions, resource curse and dominance of state-related companies in the financial as well as non-financial sectors) and planned economy of the Soviet Union. We analyze the financial crisis 2008-2009 in Russia and the breakdown of the USSR and argue that these events could be interpreted along Minsky's line of argument.

Keywords: Hyman Minsky; financial crisis; financial instability hypothesis; endogenous money; planned economies; fall of the USSR; theory of money; business cycles; Minsky moment (search for similar items in EconPapers)
JEL-codes: B50 E12 E32 E42 E44 E5 E60 G01 P2 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2014-08-22
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