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Profits, Confidence and public deficits: modeling Minsky's institutional dynamics

Eric Nasica and Alain Raybaut ()

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Abstract: The aim of this paper is to present a "Minskian" model which explicitly deals with the influence of the institutional dynamics on the relation between finance, investment and economic fluctuations. First, the Minskian foundations of the proposed analytical framework are highlighted. Second the dynamical properties of the model are studied, drawing the inferences of a stabilization policy. It is shown that the economy is unstable when the budget policy is not very sensitive to variations in private investment. On the contrary, when, the counter cyclical deficit constraint is flexible enough, the economy is stabilized. These results, that echo recent debates and proposals on budget deficits rules in the EMU, are fully consistent with the way Minsky considers that public authorities may "stabilize an unstable economy".

Keywords: Minsky; financial instability; confidence; public deficits (search for similar items in EconPapers)
Date: 2005
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Published in Journal of Post Keynesian Economics, Taylor & Francis (Routledge), 2005, 28 (1), pp.136-154

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