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The Minskyan System, Part II: Dynamics of the Minskyan Analysis and the Financial Fragility Hypothesis

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  • Eric Tymoigne

Abstract

This is the second part of a three-part analysis of the Minskyan framework. It studies in detail the dynamics at the root of the endogenous financial weakening of capitalist economic systems. This part combines the properties presented in part I with other important concepts, such as the paradox of leverage and conventional expectations, to explain the Financial Instability Hypothesis. It is demonstrated that the signs of fragility are not always visible and that financial weakening can take many different (even though well-defined) routes. This is used to draw some conclusion about the appropriate way to test for this hypothesis and the limit of data.

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  • Eric Tymoigne, 2006. "The Minskyan System, Part II: Dynamics of the Minskyan Analysis and the Financial Fragility Hypothesis," Economics Working Paper Archive wp_453, Levy Economics Institute.
    • Handle: RePEc:lev:wrkpap:wp_453
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    1. Ferri, Piero & Minsky, Hyman P., 1992. "Market processes and thwarting systems," Structural Change and Economic Dynamics, Elsevier, vol. 3(1), pages 79-91, June.
    2. Marc Lavoie & Mario Seccareccia, 2001. "Minsky's financial fragility hypothesis: a missing macroeconomic link?," Chapters, in: Riccardo Bellofiore & Piero Ferri (ed.), Financial Fragility and Investment in the Capitalist Economy, chapter 4, Edward Elgar Publishing.
    3. Shiller, Robert J., 1999. "Human behavior and the efficiency of the financial system," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 20, pages 1305-1340, Elsevier.
    4. N/A, 1989. "Comments," ILR Review, Cornell University, ILR School, vol. 43(1), pages 89-102, October.
    5. Claudia Campbell & Hyman Minsky, 1987. "How to get off the back of a tiger, or, do initial conditions constrain deposit insurance reform?," Proceedings 158, Federal Reserve Bank of Chicago.
    6. L. Randall Wray, "undated". "Surplus Mania: A Reality Check," Economics Policy Note Archive 99-3, Levy Economics Institute.
    7. Ronnie J. Phillips, 1997. "Rethinking Bank Examinations: A Minsky Approach," Journal of Economic Issues, Taylor & Francis Journals, vol. 31(2), pages 509-516, June.
    8. Martin H. Wolfson, 1996. "A Post Keynesian Theory of Credit Rationing," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 18(3), pages 443-470, March.
    9. Jack Guttentag & Richard J. Herring, 1988. "Prudential supervision to manage systemic vulnerability," Proceedings 217, Federal Reserve Bank of Chicago.
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    Cited by:

    1. Sébastien Charles, 2008. "Teaching Minsky's financial instability hypothesis: a manageable suggestion," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 31(1), pages 125-138, September.

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