Minsky’s Moment
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Minsky’s Moment

An Insider’s View on the Economics of Hyman Minsky

Piero Ferri

At its core this book sets out the analytical and methodological foundations of Minsky’s financial instability hypothesis (FIH). Grounded on the joint work of Piero Ferri and Hyman Minsky, it offers insightful analysis from a unique insider's perspective. The objective is to deepen and enlarge the toolbox used by Minsky and to place the analysis within a dynamic perspective where a meta model, based upon regime switching, can encompass the different forms that the FIH can assume.
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Chapter 14: The financial instability hypothesis, inequality and the Great Recession

Piero Ferri

Abstract

This chapter tries to apply the financial instability hypothesis to a context, namely the Great Recession, which is different from that which prevailed in the Great Depression. This time debt related to consumption is at center stage, while debt deflation did not occur. In the present chapter a dynamic model driven by a consumption function based upon two fundamental forces – i) emulation and ii) financial aspects – is presented. In a sense, it is a generalization of Minsky’s financial instability hypothesis. These two forces presuppose a monetary economy of production marked by inequality in income and wealth. Inserted into a dynamic model, this consumption function can generate complex dynamic patterns, where the possibility of bubbles and runaway situations is indeed very large. An evolutionary perspective is eventually considered.

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