Analytical Political Economy

7MINSKY MODELS: A STRUCTURED SURVEY

Maria Nikolaidi

University of Greenwich

Engelbert Stockhammer

Kingston University

1. Introduction

Since the global financial crisis, there has been a surge in interest in the work of Hyman Minsky and his financial instability hypothesis (FIH). Even the financial press (Financial Times Alphaville 20/8/2007),¹ the key economic policy institutions (White, 2009; IMF, 2012) and the mainstream economics literature (e.g. Eggertsson and Krugman, 2012 and Bhattacharya et al., 2015) refer to Minsky respectfully. However, there is a literature on modeling Minsky's FIH within the field of heterodox economics that has been largely ignored by this interest in Minsky. The aim of this paper is to offer a survey of this literature.

Minsky's financial theory of economic crises explains how periods of tranquil growth lead to more financially fragile structures and speculative booms that can result in deep recessions and instability (Minsky, 1975, 1982, 1986 [2008]). In Minsky's theoretical framework, financial fragility increases due to endogenous forces that are linked with institutional transformations and the willingness of firms and banks to adopt riskier financial practices because of lower perceived uncertainty. Financial markets play also an important role in the generation of booms and busts since asset prices affect investment and debt relationships. There are at least four key features in Minsky's theory that have been extensively used in the Minskyan ...