Minsky Models: A Structured Survey

Abstract

Minsky's ideas have recently gained prominence in the mainstream as well as in the heterodox literature. However, there exists no agreement upon the formal presentation of Minsky's insights. The aim of this paper is to survey the literature and identify differences and similarities in the ways through which Minskyan ideas have been formalised. We distinguish between the models that focus on the dynamics of debt or interest, with no or a secondary role for asset prices, and the models in which asset prices play a key role in the dynamic behaviour of the economy. Within the first category of models we make a classification between (i) the Kalecki-Minsky models, (ii) the Kaldor-Minsky models, (iii) the Goodwin-Minsky models, (iv) the credit rationing Minsky models, (v) the endogenous target debt ratio models and (vi) the Minsky-Veblen models. Within the second category of models, we distinguish between (i) the equity price Minsky models and (ii) the real estate price Minsky models. Key limitations of the models and directions for future research are outlined. Year: 2017No: GPERC50 GREENWICH POLITICAL ECONOMY RESEARCH CENTRE (GPERC)

Minsky from the Bottom Up - Formalising the Two-Price Model of Investment in a Simple Agent-based Framework

“…While, as discussed in Appendix B , an aggregated version of the model incorporating the same non-linearities as the baseline unsurprisingly also gives rise to cycles, the major point is that even when firms' decisions do not take place at the aggregate level, their individual uncoordinated investment behaviour is still sufficiently correlated to give rise to smaller but regular cycles. Along with the series of papers by Chiarella and Di Guilmi cited above, the paper hence demonstrates the added value of a heterogeneous agent approach in Minsky models which, as noted by Nikolaidi and Stockhammer (2017) , is somewhat underdeveloped. Secondly, the general framework of the two-price model of capital investment as formalised here is quite flexible in that it allows for the incorporation of a range of behavioural assumptions through slight modifications to what is presented as the baseline model.…”

“…Overall, the above discussions demonstrate that the cycles produced by the present model are centrally driven by the financing decisions and investment strategies of firms which strongly depend on financing conditions and investors' expectations about yields, making it legitimate to call them 'Minsky cycles'. As emphasised in the introduction, none of the factors and mechanisms determining investment in the present model are new to the literature, but the discussion of the baseline simulation in my view shows that the investment dynamics generated are behaviourally richer than those produced by many of the more simplified and aggregative models discussed by Nikolaidi and Stockhammer (2017) . The cycles generated by the model presented in Fazzari et al (2008) are somewhat similar insofar as internal financing as an argument in the investment function and endogenous fluctuations in the interest rate play a key role, though the exact mechanisms are of course different (for instance, changes in the interest rate are driven by expected inflation in Fazzari et al, 2008 ), and their model differs from the present one in various other respects (e.g.…”

“…1). As 'Minsky cycles' are frequently held to imply or even depend on a pro-cyclical leverage ratio in the literature ( Nikolaidi and Stockhammer, 2017;Stockhammer, 2019 ), this insight may be taken as an argument against the likelihood of Minskyan dynamics at the macroeconomic level. By now there is a fairly sizeable literature discussing the conditions under which the paradox of debt is likely to emerge, and how this impacts the arguments of Minsky (e.g.…”

“…It is shown that the resulting model gives rise to cycles in GDP which are driven by the investment and financing decisions of consumption goods firms, with a key role being played by dividend payouts based on a variable retention ratio. Nikolaidi and Stockhammer (2017) provide a comprehensive survey of the literature on Minsky models, including existing papers drawing on the two-price model. For instance, Delli Gatti and Gallegati (1990) invoke the two-price model to justify the formulation of an aggregate investment function in which investment is a function of the gap between the demand and supply price as well as available internal financing.…”

Three decades of modelling Minsky: what we have learned and the way forward

“…1 For a more detailed analysis of the differences between the Minsky models see Nikolaidi/Stockhammer (2017). 2 By making a distinction between corporate debt and household debt models, our categorisation excludes by definition the Minsky models that examine corporate and household debt in conjunction (e.g.…”