EconPapers    
Economics at your fingertips  
 

A Minimal Probabilistic Minsky Model: 3D Continuous-Jump Dynamics

Greg Hannsgen ()
Additional contact information
Greg Hannsgen: Greg Hannsgen's Economics Blog (US)

No PKWP2102, Working Papers from Post Keynesian Economics Society (PKES)

Abstract: This paper proposes a formalization of Hyman P. Minsky’s theory of financial instability. The model includes private-sector borrowing, capacity utilization, and the stock of private-sector debt. The model is based on self-reinforcing borrowing and output dynamics that repeatedly come to a sudden stop, with discontinuous downward jumps in the three variables. The paper treats as endogenous the instantaneous probability of a jump and the size distribution of jump vectors. Formally, the model comprises three ordinary differential equations and a compound Poisson process, with jumps drawn from a heavy-tailed stable distribution. The paper shows it can be stated in three equations in the jump differentials and the usual differentials. A section sketches a nonlinear mechanism that can bound the system. The paper analyzes the dynamics of a simplified version of the main model and a more-SFC model with feedbacks from debt to borrowing and capacity utilization via debt-service effects. The paper reports (1) eigenvalues for the linear parts of both the simplified analytical model and a numerical example of the more-SFC model, (2) a phase diagram for the analytical model, and, (3) analytical stability conditions for the more-SFC model. The model replicates the upward instability and abrupt crises of Minsky’s theory.

Keywords: Minsky model; paradox of debt; Poisson process; financial crisis; dynamical macroeconomic model; Hyman P. Minsky; stable distribution; stock-flow consistency; theory of financial instability; dynamical systems; cádlág process; John Maynard Keynes (search for similar items in EconPapers)
Pages: 24
Date: 2021-01
New Economics Papers: this item is included in nep-cwa, nep-hme and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.postkeynesian.net/downloads/working-papers/PKWP2102.pdf First version, 2021 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pke:wpaper:pkwp2102

Access Statistics for this paper

More papers in Working Papers from Post Keynesian Economics Society (PKES) Contact information at EDIRC.
Bibliographic data for series maintained by Jo Michell ().

 
Page updated 2021-05-17
Handle: RePEc:pke:wpaper:pkwp2102