Is Minsky’s financial instability hypothesis valid?

Charles, Sébastien

doi:10.1093/cje/bev022

Cited by 18 publications

(10 citation statements)

References 25 publications

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“…Interestingly, the shareholder value orientation fits well, and even validates, Minsky's financial instability hypothesis (Charles 2016). In short, Minsky advocates that modern capitalist economies are inherently unstable due to increasing financial fragility being built up during periods of prolonged financial tranquility.…”

Section: Introductionsupporting

confidence: 55%

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Have we been here before? Phases of financialization within the twentieth century in the US

Fasianos¹,

Guevara²,

Pierros³

2018

ROKE

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This paper explores the process of financialization from a historical perspective during the course of the twentieth century. We identify four phases of financialization: the first from the 1900s to 1933 (early financialization), the second from 1933 to 1940 (transitory phase), the third between 1945 and 1973 (de-financialization), and the fourth period picks up from the early 1970s and leads to the Great Recession (complex financialization). Our findings indicate that the main features of the current phase of financialization were already in place in the first period. We closely examine institutions within these distinct financial regimes and focus on the relative size of the financial sector, the respective regulation regime of each period, the intensity of the shareholder value orientation, as well as the level of financial innovations implemented. Although financialization is a recent term, the process is far from novel. We conclude that its effects can be studied better with reference to economic history.

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Section: Introductionsupporting

confidence: 55%

“…In periods of financialization, however, shareholder value orientation imposes a higher distribution of dividends, reducing thereby retained profits. In tandem with low interest rates, this reflects the period of tranquility that allowed financial fragility to build up in the Minksyan interpretation of financial crises (Charles 2016). 2.…”

Section: Introductionmentioning

confidence: 96%

Have we been here before? Phases of financialization within the twentieth century in the US

Fasianos¹,

Guevara²,

Pierros³

2018

ROKE

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“…Thus, in the framework of Minsky’ theory, the paradox of debt is explainable on the presumption of monopoly markets. Further discussion can be referred to [ 73 ]. Some studies try to expand the Kaleckian model [ 74 , 75 , 76 ] by bringing a normal degree of capacity utilization into endogenous investment function.…”

Section: Progress In Systemic Risk Researchmentioning

confidence: 99%

A Review of Micro-Based Systemic Risk Research from Multiple Perspectives

Bai

Sun

et al. 2020

Entropy

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The Covid-19 pandemic has brought about a heavy impact on the world economy, which arouses growing concerns about potential systemic risk, taking place in countries and regions. At this critical moment, it makes sense to interpret the systemic risk from the perspective of the financial crisis framework. By combing the latest research on systemic risks, we may arrive at some precautions relating to the current events. This literature review verifies the origin of systemic risk research. By comparing the retrieved and screened systemic literature with the relevant research on the financial crisis, more focus on the micro-foundations of systemic risk has been discovered. Besides, the measurement methods of systemic risks and the introduction of interdisciplinary methods have made the research in this field particularly active. This paper synthesizes the previous research conclusions to find the appropriate definition of systemic risk and combs the research literature of systemic risk from two lines: Firstly, conducting the division according to the sub-branch fields within the financial discipline and the relevant interdisciplinary research methods, which is helpful for scholars within and outside the discipline to have a more systematic understanding of the research in this field. Secondly predicting the research direction that can be expanded in this field.

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“…In the attempt to provide a theoretical ground to the understanding of the recent financial crisis, his FIH has abundantly been referred to by authors from different traditions within academia (e.g. Wray, 2011;Eggertsson and Krugman, 2012;Bhattacharya et al, 2015;Charles, 2016.) andbeyond (e.g.…”

Section: Minsky's Contributionmentioning

confidence: 99%

The Financial Innovation Hypothesis: Schumpeter, Minsky and the sub-prime mortgage crisis

Caverzasi

Tori

2018

SSRN Journal

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Neo-Schumpeterian economics inspired by the work of Schumpeter and the financial Keynesianism of Minsky are often regarded as unrelated theoretical strands. In this paper, we try to combine these two literatures building on a parallelism between non-financial and financial firms. We focus on recent financial innovations, highlighting how the evolution experienced by US financial institutions led them to transcend their traditional role of credit providers, shaping as 'producers' of financial products, through securitization. This allows on the one hand to broaden the application of Neo-Schumpeterian insights to the financial sector and, on the other, to provide an original explanation of the so-called sub-prime crisis by applying the Financial Instability Hypothesis of Minsky to the alternative context of financial production. We maintain that the 2007-8 crisis was not the result of an innovation in the real sector, but came from an innovation (or a series of innovations) intrinsic to the financial system itself, which fostered credit creation. We argue that this 'cluster of innovations' can be placed under the label 'securitization', defined as the business of packaging and reselling loans, with repo agreements as the main source of funds. ACKNOWLEDGMENT:We are grateful to one anonymous referee, Riccardo Bellofiore, Beniamino Callegari, and all the attendees to the parallel session on 'Innovation and Technological change' within the 30 th Annual conference of the European Association of Evolutionary Economics, for suggestions and comments that improved an earlier version of this manuscript. The usual disclaimers apply.

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Is Minsky’s financial instability hypothesis valid?

Cited by 18 publications

References 25 publications

Have we been here before? Phases of financialization within the twentieth century in the US

Have we been here before? Phases of financialization within the twentieth century in the US

A Review of Micro-Based Systemic Risk Research from Multiple Perspectives

The Financial Innovation Hypothesis: Schumpeter, Minsky and the sub-prime mortgage crisis

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