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THE PARADOX OF DEBT AND MINSKY'S FINANCIAL INSTABILITY HYPOTHESIS
Author(s) -
Ryoo Soon
Publication year - 2013
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/j.1467-999x.2012.04163.x
Subject(s) - economics , debt , asset (computer security) , criticism , post keynesian economics , keynesian economics , finance , art , computer security , literature , computer science
Some authors have claimed that the paradox of debt invalidates Minsky's theory of financial instability. Their theoretical frameworks are radically different from Minsky's in several aspects. Important Minskian elements, the role of margins of safety as a basis of financial decisions and the effects of asset prices on debt dynamics, among others, are absent in the critics' frameworks. We maintain that the thrust of the paradox of debt‐based criticism to Minsky's theory has been exaggerated and key insights of Minsky's theory of financial instability can be formalized in an alternative macroeconomic framework. We provide a stock‐flow consistent model of Minskian long waves.