Hyman P. Minsky's unorthodox approach: recent advances in simulation techniques to develop his theoretical assumptionsAbstract: This paper aims to contribute to the debate on the determinants of financial instability suggested by Hyman P. Minsky. In particular, we discuss the difficulties of analytically addressing his theory and the new scientific frontiers opened by agent-based modeling. Hyman Minsky's work is known as the reference point for several critical strands of standard economic theory. Through these strands, he tries to provide a "financial" interpretation of Keynes's General Theory. Minsky's main research findings converge into the financial instability hypothesis (FIH), according to which in a system based on capitalistic dynamics and characterized by growing and complex financial relations, the economy tends to move from a stable system to a frail one. What causes the economy to become more fragile is derived endogenously from inherent speculative behavior of a financial nature. However, it is not easy to formalize the FIH into a rigorous analytical model. In this regard, we present a survey of Minsky's unorthodox contribution and the recent development of simulation-agent-based models as a new research agenda that can help to model his FIH.
The purpose of this work is twofold. First, we highlight the importance of the finance motive in Keynes and how it has affected the work of Augusto Graziani and Hyman Minsky. Second, we build an agent‐based model where artificial agents replicate heterogeneous financial behavior induced from discovery driven economic experiments. The aggregate and disaggregate outcomes of the model are then investigated to identify the role of entrepreneurs' financial decisions in facing aggregate negative events or in generating endogenous business cycles.
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