Financial Instability

My main research area is modelling Minsky's "Financial Instability Hypothesis", which argues that speculative finance can destablise the economy. I have provided mathematical models of this process, which have been published in a number of places. My next book, Finance and Economic Breakdown, will give a comprehensive presentation of this work.

As I argue in some of these papers, I believe Japan fell into a debt deflation in 1990, which is why their economic downturn has been so prolonged and intractable. Given the unwinding of the enormous Internet credit bubble in the USA, I expect America to fall into the same trap eventually, though the twin effects of the USA's role as world reserve currency, and the huge deficits of the Bush administration, have delayed the day of reckoning.

Technical Paper on-line

"The Nonlinear Dynamics of Debt Deflation", Complexity International, Volume 6.

Lectures

My academic lectures on financial instability provide a reasonably comprehensive overview of Minsky's theory, and its place in non-orthodox theories of finance. These are necessarily technical, and start from the empirical data on monetary aggregates in the USA--which strongly contradict the conventional "Quantity Theory of Money" arguments that dominate neoclassical economics

Endogenous Money

One important aspect of the Financial Instability Hypothesis is the proposition that the money supply is not under the control of the monetary authority, but is "endogenous"—i.e., determined in the financial/market system. This is largely accepted by Central Bankers today after the failure to reach money supply growth targets during the the "monetarist" period; but most economic models still treat money as either exogenous (under the control of the monetary authority) or "superneutral", so that it has no effect on real economic variables but does affect the rate of change of prices. I have recently produced a model of endogenous money based on the work of the "Circuitist" School (a non-neoclassical school of thought based mainly in Italy and France). My most recent paper on this topic is available here.

Other papers

(2001). "Minsky's thesis: Keynesian or Marxian?" in Bellofiori, R., & Ferri, P., (eds.), Financial Keynesianism and Market Instability, Edward Elgar, Aldershot, 106-120 (paper as presented at the Bergamo conference)
(2000). "The Nonlinear Economics of Debt Deflation", in Barnett, W., Chiarella, C., Keen, S., Marks, R., Schnabl, H., (eds), Commerce, Complexity and Evolution, Cambridge University Press, 83-110.
(1997). "From stochastics to complexity in models of economic instability", Nonlinear Dynamics, Psychology and Life Sciences, Vol. 1, No. 2, 151-172.
(1996). "The chaos of finance", Economies et Societes, Vol. 30, special issue Monnaie et Production No. 10, 55-82.
(1995). "Finance and economic breakdown: modelling Minsky's Financial Instability Hypothesis", Journal of Post Keynesian Economics, Vol. 17, No. 4, 607-635.