A simplified stock-flow consistent dynamic model of the systemic financial fragility in the 'New Capitalism'

Passarella Marco
Authors registered in the RePEc Author Service: Marco Veronese Passarella

MPRA Paper from University Library of Munich, Germany

Abstract: In the last few years, many financial analysts and heterodox economists (but even some ‘dissenters’ among orthodox economists) have referred to the contribution of Hyman P. Minsky as fundamental to understanding the current crisis. However, it is well-known that the traditional formulation of Minsky’s ‘financial instability hypothesis’ shows serious internal logical problems. Furthermore, Minsky’s analysis of capitalism must be updated on the basis of the deep changes which, during the last three decades, have concerned the world economy. In order to overcome these theoretical and empirical troubles, this paper, first, introduces the reader to the ‘mechanics’ of the financial instability theory, according to the formulation of the traditional Minskian literature (section 2). Second, it shows ‘why’ Minsky’s theory cannot be regarded as a general theory of the business cycle (section 3). Third, the paper attempts to supply a simplified, but consistent, re-formulation of Minsky’s theory by inter-breeding it with inputs coming from the ‘New Cambridge’ theories and the current ‘formal Minskian literature’. The aim of this is to analyze the impact of both capital-asset inflation and consumer credit on the financial ‘soundness’ of the non-financial business sector (sections 4-7). Some concluding remarks are provided in the last part of the paper (section 8).

Keywords: Financial Instability; Stock-Flow Consistency; Capital-asset Inflation (search for similar items in EconPapers)
JEL-codes: B50 E12 E32 E44 (search for similar items in EconPapers)
Date: 2011-01-19
New Economics Papers: this item is included in nep-hpe and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: A simplified stock-flow consistent dynamic model of the systemic financial fragility in the ‘New Capitalism’ (2012)
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