financial instability hypothesis
E434305
The financial instability hypothesis is an economic theory, developed by Hyman Minsky, which argues that periods of financial stability in capitalist economies naturally lead to increasing risk-taking and speculative borrowing that eventually culminate in financial crises.
All labels observed (2)
| Label | Occurrences |
|---|---|
| financial instability hypothesis canonical | 3 |
| Minskian financial instability approach | 1 |
Statements (46)
| Predicate | Object |
|---|---|
| instanceOf |
economic theory
ⓘ
macroeconomic theory ⓘ post-Keynesian theory ⓘ theory of financial crises ⓘ |
| appliesTo | capitalist economies ⓘ |
| associatedWith | Hyman Minsky NERFINISHED ⓘ |
| category |
heterodox economics
ⓘ
post-Keynesian economics ⓘ theories of financial instability ⓘ |
| claims |
financial positions become increasingly fragile during expansions
ⓘ
regulatory and institutional frameworks influence degree of financial fragility ⓘ |
| contrastsWith |
efficient markets hypothesis
ⓘ
rational expectations models of financial markets ⓘ |
| coreIdea |
endogenous financial fragility develops during economic expansions
ⓘ
financial crises are generated within the financial system rather than by purely external shocks ⓘ periods of stability in capitalist economies encourage increasing financial risk-taking ⓘ prolonged stability leads to rising leverage and speculative borrowing ⓘ stability is destabilizing ⓘ |
| critiques | assumption of inherent financial market stability ⓘ |
| describes | evolution from hedge finance to speculative finance to Ponzi finance over the cycle ⓘ |
| developedBy | Hyman Minsky NERFINISHED ⓘ |
| emphasizes |
importance of financial structure
ⓘ
interaction between investment, financing, and income flows ⓘ role of debt in macroeconomic dynamics ⓘ |
| explains |
boom-bust cycles in financial markets
ⓘ
credit cycles ⓘ endogenous financial crises ⓘ |
| field |
financial economics
ⓘ
macroeconomics ⓘ monetary economics ⓘ |
| includesConcept |
Ponzi finance
ⓘ
hedge finance ⓘ speculative finance ⓘ |
| influencedBy | John Maynard Keynes NERFINISHED ⓘ |
| policyImplication |
importance of lender of last resort
ⓘ
need for countercyclical financial regulation ⓘ need to constrain speculative and Ponzi finance ⓘ |
| relatedTo |
Minsky moment
NERFINISHED
ⓘ
endogenous instability ⓘ financial fragility ⓘ |
| usedToAnalyze |
Great Depression
NERFINISHED
ⓘ
global financial crisis of 2007–2009 ⓘ |
| viewOnCrises | financial crises are recurrent features of capitalism ⓘ |
| viewOnExpectations | success breeds over-optimism and underestimation of risk ⓘ |
| viewOnInvestment | investment is financed through increasingly fragile balance sheets in booms ⓘ |
| viewOnLeverage | rising leverage increases systemic vulnerability ⓘ |
Referenced by (4)
Full triples — surface form annotated when it differs from this entity's canonical label.
this entity surface form:
Minskian financial instability approach