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 15: A meta-model of the financial instability hypothesis

Piero Ferri

Abstract

This chapter tries to insert Minsky’s financial instability hypothesis into a meta-model capable of considering all the different specifications. In particular, it is based upon a regime switching technique that is particularly fit for taking two Minsky theorems into consideration. The first theorem is that the economy has financing regimes under which it is stable and others under which it is unstable. The second is that over periods of prolonged prosperity, the economy transits from financial relations that make for a stable system to financial relations that make for unstable system. These two theorems can be analyzed by means of a regime switching mechanism. The interaction between financial and real aspects is capable of generating persistent fluctuations that are the natural soil in which behavior à la Ponzi can take place and financial instability phenomena are generated.

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