The Financial Instability Hypothesis: A Stochastic Microfoundation Framework

Chiarella, Carl; Guilmi, Corrado Di

doi:10.2139/ssrn.1574615

Cited by 21 publications

(39 citation statements)

References 45 publications

(34 reference statements)

Supporting

Mentioning

Contrasting

Order By: Relevance

“…For a study of the banks lending attitude in an agent-based model see Asanuma (2013). 4 See Charpe et al (2011), Chiarella andDi Guilmi (2011), andGardini (1993). 5 For an analytical investigation of the separate effects of switching and herding on market volatility see Di Guilmi, He, and Li (2014).…”

Section: Notesmentioning

confidence: 99%

“Animal spirits” and bank’s lending behaviour, a disequilibrium approach

Chiarella

Guilmi

Zhi

2019

Studies in Nonlinear Dynamics &Amp; Econometrics

Self Cite

View full text Add to dashboard Cite

The paper analyses from a disequilibrium perspective the role of banks’ “animal spirits” and collective behaviour in the creation of credit that, ultimately, determines the credit cycle. In particular, we propose a dynamic model to analyse how the transmission of waves of optimism and pessimism in the supply side of the credit market interacts with the business cycle. We adopt the Weidlich-Haag-Lux approach to model the opinion contagion of bankers. We test different assumptions on banks’ behaviour and find that opinion contagion and herding amongst banks play an important role in propagating the credit cycle and destabilizing the real economy. The boom phases trigger banks’ optimism that collectively lead the banks to lend excessively, thus reinforcing the credit bubble. Eventually the bubbles collapse due to an over-accumulation of debt, leading to a restrictive phase in the credit cycle.

show abstract

Section: Notesmentioning

confidence: 99%

“Animal spirits” and bank’s lending behaviour, a disequilibrium approach

Chiarella

Guilmi

Zhi

2019

Studies in Nonlinear Dynamics &Amp; Econometrics

Self Cite

View full text Add to dashboard Cite

show abstract

“…These dynamics of the model resemble the dynamics of Taylor and O'Connell (1985) in the case where there is high asset substitution and as a result the system becomes unstable. Chiarella and Di Guilmi (2011) propose a heterogeneous agents model that builds on and extends Taylor and O'Connell (1985) in several ways. On the financial side, they allow investors to hold equity, debt and money as financial assets.…”

Section: Equity Price Minsky Modelsmentioning

confidence: 99%

Minsky Models: A Structured Survey

Nikolaidi

Stockhammer²

2017

Journal of Economic Surveys

View full text Add to dashboard Cite

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)

show abstract

“…Actually a few recent studies have followed this direction (e.g. Chiarella/Di Guilmi 2011;Michell 2014;Caiani et al 2016), developing macro models in which the macro fragility can emerge from the individual behaviour and financial structures of firms. However, a caveat is that agent-based models can become very complicated in practice, making it difficult to identify the underling mechanisms through which financial fragility can arise.…”

Section: Agent-based Modelling and Heterogeneitymentioning

confidence: 99%

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

Nikolaidi

2017

European Journal of Economics and Economic Policies: Intervention

View full text Add to dashboard Cite

This paper intends to contribute to the contemporary discussions about Minsky's economics by reviewing how the key ideas of Minsky have been formalised in the heterodox literature over the last three decades or so. First, a distinction is made between the different models based on (a) the source of financial instability they focus on, (b) the type of heterodox macroeconomic framework into which Minskyan ideas are incorporated and (c) the purpose and the nature of the dynamic analysis. Second, the key lessons learned from modelling Minsky are outlined. Finally, the paper calls for more empirically-driven models, points out the usefulness of agent-based approaches and highlights the need for the development of Minsky models on open economy, shadow banking and environmental issues.

show abstract

The Financial Instability Hypothesis: A Stochastic Microfoundation Framework

Cited by 21 publications

References 45 publications

“Animal spirits” and bank’s lending behaviour, a disequilibrium approach

“Animal spirits” and bank’s lending behaviour, a disequilibrium approach

Minsky Models: A Structured Survey

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

Contact Info

Product

Resources

About