Marco, Passarella (2011): Systemic financial fragility and the monetary circuit: a stock-flow consistent approach.
Download (471kB) | Preview
In the last few years, a number of scholars has referred to the crop of contributions of Hyman P. Minsky as required readings to understanding the tendency of the capitalist economies to fall into recurring crises. The so-called ‘financial instability hypothesis’ of Minsky relies, however, on very disputed assumptions. Moreover, 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 difficulties, section 2 of the paper deals with the analytical structure of the financial instability theory, showing why this latter cannot be regarded as a general theory of the business cycle. Sections 3, 4 and 5 deal with a simplified, but consistent, re-formulation of some of the most disputed aspects of Minsky’s theory by cross-breeding it with inputs from the ‘Circuitist’ approach and the current Post Keynesian literature. In sections 6 and 7 we analyze the impact of both capital-asset inflation and consumer credit on the financial ‘soundness’ of the economy, within a simplified stock-flow consistent monetary circuit model. Some concluding remarks are provided in the last part of the paper (section 8).
|Item Type:||MPRA Paper|
|Original Title:||Systemic financial fragility and the monetary circuit: a stock-flow consistent approach|
|Keywords:||Financial Instability; Stock-Flow Consistency; Monetary Theory of Production|
|Subjects:||E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles
E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E12 - Keynes ; Keynesian ; Post-Keynesian
B - History of Economic Thought, Methodology, and Heterodox Approaches > B5 - Current Heterodox Approaches > B50 - General
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
|Depositing User:||Marco Passarella|
|Date Deposited:||31 Jan 2011 20:25|
|Last Modified:||25 Apr 2017 07:14|
Bellofiore R. and Halevi J. (2009) “A Minsky moment? The subprime crisis and the new capitalism”, in C. Gnos and L.P. Rochon (eds.), Credit, Money and Macroeconomic Policy. A Post-Keynesian Approach, Cheltenham: Edward Elgar.
Bellofiore R. and Halevi J. (2010) “Magdoff-Sweezy and Minsky on the Real Subsumption of Labour to Finance”, in D. Tavasci and J. Toporowski (eds.), Minsky, Financial Development and Crises, Basingstoke: Palgrave Macmillan.
Bellofiore R., Halevi J. and Passarella M. (2010) “Minsky in the ‘new’ capitalism. The new clothes of the Financial Instability Hypothesis”, in D. Papadimitriou and L.R. Wray (eds.), The Elgar Companion to Hyman Minsky, Northampton: Edward Elgar, pp. 84-99.
Bellofiore R. and Passarella M. (2009) “Finance and the realization problem in Rosa Luxemburg: a ‘circuitist’ reappraisal”, in J.F. Ponsot and S. Rossi (eds.), The Political Economy of Monetary Circuits: Tradition and Change in Post-Keynesian Economics, Basingstoke & New York: Palgrave Macmillan, pp. 98-115.
Brancaccio E. (2008) “Solvency and labour effort in a monetary theory of production”, European Journal of Economic and Social Systems, 21(2): 195-211.
Cavalieri D. (2003) “On the closure of the monetary circuit”, working paper presented at the conference on The Monetary Theory of Production (in Honour of Augusto Graziani), Benevento, Italy, December 5-6 2003.
Corbisiero G. (1998) “La problematica della crescente fragilità nella ‘ipotesi di instabilità finanziaria’ da una prospettiva kaleckiana”, in Banca d’Italia, Temi di discussione, Servizio Studi, No. 330.
Davidson P. (2008) “Is the current financial distress caused by the subprime mortgage crisis a Minsky moment? or is it the result of attempting to securitize illiquid non commercial loans?”, Journal of Post Keynesian Economics, 30(4): 669-76.
De Antoni E. (2009) “Minsky, Keynes and financial instability: the recent subprime crisis”, working paper presented at the 13th Conference of the Research Network Macroeconomics and Macroeconomic Policies, Berlin, Germany, October 30-31 2009 [then published on International Journal of Political Economy, 2010, 39(2): 10-25].
Dos Santos C. (2005) “A stock-flow general consistent framework for formal Minskian analyses of closed economies”, Journal of Post Keynesian Economics, 27(4): 711-35.
Dos Santos C. (2006) “Keynesian theorizing during hard times: stock-flow consistent models as an unexplored ‘frontier’ of Keynesian Macroeconomics”, Cambridge Journal of Economics, 30(4): 541-65.
Dos Santos C. and Zezza G. (2008) “A simplified, ‘benchmark’, stock-flow consistent Post-Keynesian growth model”, Metroeconomica, 59(3): 441-478.
Godley W. (1996) “Money, finance, and national income determination: an integrated approach”, The Levy Economics Institute, Working Paper No. 167.
Godley W. (1999a) “Seven Unsustainable Processes: Medium-Term Prospects and Policies for the United States and the World”, The Levy Economics Institute, Strategic Analysis, January 1999 (revised October 2000).
Godley W. (1999b) “Money and credit in a Keynesian model of income determination”, Cambridge Journal of Economics, 23(4): 393-411.
Godley W. and Cripps F. (1983) Macroeconomics, London: Fontana.
Godley W. and Lavoie M. (2007a) Monetary economics: an integrated approach to credit, money, income production and wealth, Basingstoke: Palgrave Macmillan.
Godley W. and Lavoie M. (2007b) “Fiscal Policy in a Stock-Flow Consistent (SFC) Model”, The Levy Economics Institute, Working Paper No. 494.
Graziani A. (2003) The Monetary Theory of Production, Cambridge: Cambridge University Press.
Kaldor N. (1966) “Marginal productivity and the macro-economic theories of growth and distribution”, Review of Economic Studies, 33(96): 309-319.
Kalecki M. (1971) Selected Essays on the Dynamics of the Capitalist Economy, 1933-1970, Cambridge: Cambridge University Press.
Keen S. (2009) “The dynamics of the monetary circuit”, in J.F. Ponsot and S. Rossi (eds.), The Political Economy of Monetary Circuits: Tradition and Change in Post-Keynesian Economics, Basingstoke & New York: Palgrave Macmillan, pp. 161-187.
Kregel J.A. (1997) “Margins of safety and weight of the argument in generating financial fragility”, Journal of Economic Issues, 31(2): 543-548.
Kregel J.A. (2008) “Minsky’s cushion of safety. Systemic risk and the crisis in the U.S. subprime mortage market”, The Levy Economics Institute, Public Policy Brief, 93a.
Lavoie M. (1986) “Minsky’s law or the theorem of systemic financial fragility”, Studi Economici, 29(2): 3-28.
Lavoie M. (1986-87) “Systemic financial fragility: a simplied view”, Journal of Post Keynesian Economics, 9(2): 258-66.
Lavoie M. (2004) “Circuit and Coherent Stock-Flow Accounting”, in R. Arena and N. Salvadori (eds.), Money, Credit and the Role of the State. Essays in Honour of Augusto Graziani, Aldershot: Ashgate, pp. 136-151.
Lavoie M. (2007) Introduction to Post-Keynesian Economics, Basingstoke: Palgrave Macmillan.
Lavoie M. and Godley W. (2001-02) “Kaleckian models of growth in a coherent stock-flow monetary framework: a Kaldorian view”, Journal of Post Keynesian Economics, 24(2): 277-311.
Lavoie M. and Seccareccia M. (2001) “Minsky’s financial fragility hypothesis: a missing macroeconomic link?”, in R. Bellofiore and P. Ferri (eds.), Financial Fragility and Investment in the Capitalist Economy: the Economic Legacy of Hyman Minsky, Vol. II, Cheltenham: Edward Elgar, pp. 76-96.
Lunghini G. and Bianchi C. (2004) “The monetary circuit and income distribution: bankers as landlords?”, in R. Arena and N. Salvadori (eds.), Money, Credit and the Role of the State. Essays in Honour of Augusto Graziani, Aldershot: Ashgate, pp. 152-174.
Magnus G. (2007) “The credit cycle and liquidity: have we arrived at a Minsky moment?”, Economic Insights – By George, March, UBS Investment Research.
Michell J. (2010) “Financial Developments and Stock-flow Consistency: the Limits to Formal Modelling”, working paper presented at the international conference Beyond the Crisis, Rethymno, Creta, Greece, September 10-12 2010.
Minsky H.P. (1976) John Maynard Keynes, London: Macmillan.
Minsky H.P. (1986), Stabilizing an Unstable Economy, New Haven (CT): Yale University Press.
Papadimitriou B. and Wray L.R. (2008) “Minsky’s stabilizing an unstable economy: two decades later”, in H.P. Minsky, Stabilizing an Unstable Economy, McGraw-Hill.
Parguez A. (2003) “The solution of the paradox of profits”, in R. Arena and N. Salvadori (eds.), Money, Credit and the Role of the State. Essays in Honour of Augusto Graziani, Aldershot: Ashgate, pp. 257-270.
Passarela M. (2008) “Finance Matters! Genesi e sviluppo della Teoria del circuito monetario in Italia”, unpublished thesis.
Passarella M. (2010) “The paradox of tranquility revisited. A Lotka-Volterra model of the financial instability”, Rivista Italiana degli Economisti, 15(1): 69-104.
Pilkington M. (2009) “The financialization of modern economies in monetary circuit theory”, in J.F. Ponsot and S. Rossi (eds.), The political economy of monetary circuits. Tradition and change in Post-Keynesian economics, Basingstoke: Palgrave Macmillan, pp.188-216.
Ryoo S. (2010) “Long waves and short cycles in a model of endogenous financial fragility”, Journal of Economic Behavior and Organization, 74(3): 163-186.
Seccareccia M. (2010) “Financialization and the transformation of commercial banking: understanding the recent Canadian experience before and during the international financial crisis”, mimeo.
Sordi S. (1986) “Some notes on the second version of Kalecki’s business cycle theory”, Quaderni dell’Istituto di Economia, Siena: University of Siena.
Tobin J. (1971) Essay in Economics. Volume 1: Macroeconomics, Chicago: Markham Publishing Company.
Toporowski J. (2000) The End of Finance. Capital Market Inflation, Financial Derivatives and Pension Fund Capitalism, London: Routledge.
Toporowski J. (2008) “Minsky’s ‘induced investment and business cycles’”, Cambridge Journal of Economics, 32(5): 725-737.
Toporowski J. (2010) “Excess debt and asset deflation”, in Kates S. (ed.), Macroeconomic Theory and Its Failings. Alternative Perspectives on the World Financial Crisis, Cheltenham: Edward Elgar, chapter 13.
Tymoigne E. and Wray L.R. (2008) “Macroeconomics meets Hyman P. Minsky: the financial theory of investment”, The Levy Economics Institute and University of Missouri–Kansas City, Working Paper No. 543.
Vercelli A. (2009a) “A perspective on Minsky moments. The core of the financial instability hypothesis in the light of the subprime crisis”, The Levy Economics Institute, Working Paper No. 579.
Vercelli A. (2009b) “Minsky moments, Russel chickens, and gray swans. The methodological puzzles of the financial instability analysis”, The Levy Economics Institute, Working Paper No. 582.
Wray L.R. (2008) “Financial Markets Meltdown: What Can We Learn from Minsky?”, The Levy Economics Institute, Public Policy Brief No. 94 (April).
Zezza G. (2004) “Some simple, consistent models of the monetary circuit”, The Levy Economics Institute, Working Paper No. 405.
Zezza G. (2010) “Income distribution and borrowing. Tracking the U.S. economy with a ‘New Cambridge’ model”, working paper presented at The Global Crisis. Contributions to the critique of economic theory and policy, Siena, Italy, January 26-27 2010.