Teaching Minsky's financial instability hypothesis: a manageable suggestion

Charles, Sébastien

doi:10.2753/pke0160-3477310106

Cited by 40 publications

(66 citation statements)

References 24 publications

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“…Minsky (1995) regarded debt cycles as the driver of economic fluctuations. Recently there have been several attempts to formalise his model (Charles 2008;Fazzari et al 2008;Keen 1995;Ryoo 2013). There is a surge in interest in stock-flow consistent (SFC) models (Godley and Lavoie 2007), which highlight the impact of stock variables such as debt and net wealth on macroeconomic aggregates.…”

Section: Introductionmentioning

confidence: 99%

Debt-driven growth? Wealth, distribution and demand in OECD countries

Stockhammer

Wildauer

2015

CAMECO

110

112

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The paper investigates the effects of changes in the distribution of income and in wealth on aggregate demand and its components. We extend the Bhaduri and Marglin (1990) model to include personal income inequality as well as asset prices and debt. This allows for an evaluation of the wage or profit-led nature of demand regimes, of the expenditure cascade argument (Frank et al. 2010) and several hypotheses regarding the effects of wealth and debt. Our estimates are based on a panel of 18 OECD countries covering the period 1980-2013. For the full panel the average demand regime is found to be wage led. We fail to find effects of personal inequality, but do find strong effects of debt and property prices which have been the major drivers of aggregate demand in the decade prior to the 2007 crisis.

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Section: Introductionmentioning

confidence: 99%

Debt-driven growth? Wealth, distribution and demand in OECD countries

Stockhammer

Wildauer

2015

CAMECO

110

112

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“…Much of the literature, however, argues that it is the increasing debt ratio of firms that eventually leads banks to increase interest rates, thereby causing the downturn (e.g. Charles 2008). Second, while Minsky regarded the upswing as being accompanied by an increasing leverage ratio of firms, Lavoie and Seccareccia (2001) have demonstrated that Minsky's argument is based microeconomic principles that need not hold in the Kaleckian macroeconomic framework that Minsky is assuming (see also Michell, 2014).…”

Section: ̇ (4)mentioning

confidence: 99%

“…Consequently, several different models purporting to summarise his argument have been proposed (e.g. Skott 1994, Asada 2001, Fazzari et al 2008, Charles 2008). However, the basic structure of the argument for our purposes is clear enough.…”

Section: A Minsky Cyclementioning

confidence: 99%

Pseudo-Goodwin cycles in a Minsky model

Stockhammer¹,

Michell²

2016

CAMECO

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Goodwin cycles result from the dynamic interaction between a profit-led demand regime and a reserve army effect in income distribution. The paper proposes the concept of a pseudo-Goodwin cycle. We define this as a counter-clockwise movement in output and wage share space which is not generated by the usual Goodwin mechanism. In particular, it does not depend on a profit-led demand regime. To illustrate this, a simple Minsky-type model is extended by a reserve army distribution adjustment. In this model the cycle is generated by the interaction of financial fragility and demand. The wage share rises at higher levels of output but this generates no feedback so that, by design, demand does not react to changes in income distribution. But the model does exhibit a pseudo-Goodwin cycle in the output-wage share space. This holds true even if we introduce a wage-led demand regime. This demonstrates that the existence of a counter-clockwise movement of output and the wage share cannot be regarded as proof of the existence of a Goodwin cycle and a profit-led demand regime.

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“…Thus, introducing the employment rate into the investment function is the simplest way to endogenize the employment 6. Our saving function is similar to that of Kaldor (1966) in that firms and households save their profits, and is different from that of Kaleckians such as Hein (2006;2007) and Charles (2008a;2008b) who assume that workers do not save and only firms and capitalists save. 7.…”

Section: Dynamics Of the Rate Of Capital Accumulationmentioning

confidence: 94%

Pro-shareholder income distribution, debt accumulation, and cyclical fluctuations in a post-Keynesian model with labor supply constraints*

Sasaki

Fujita

2014

EJEEP

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In modern capitalist economies, income distribution has a tendency to be in favor of shareholders. This paper interprets pro-shareholder distribution as a decrease in the retention ratio of firms and an increase in the profit share. We introduce labor supply constraints into a post-Keynesian growth model with debt accumulation and investigate the effects of changes in the natural rate of growth, retention ratio, profit share, and interest rate on the rate of capacity utilization and the financial structure of firms. We further analyse the stability of the steady-state equilibrium and the transitional dynamics toward the equilibrium and show that, depending on conditions, there could be cyclical fluctuations such that the financial structure changes periodically between speculative finance and Ponzi finance.

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Teaching Minsky's financial instability hypothesis: a manageable suggestion

Cited by 40 publications

References 24 publications

Debt-driven growth? Wealth, distribution and demand in OECD countries

Debt-driven growth? Wealth, distribution and demand in OECD countries

Pseudo-Goodwin cycles in a Minsky model

Pro-shareholder income distribution, debt accumulation, and cyclical fluctuations in a post-Keynesian model with labor supply constraints*

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