Abstract
Part I of the paper discussed Hyman Minsky's instability hypothesis and its main critics. Part II now gives a general appraisal of Minsky's theory.
Highlights
In Keynes (1936), and in Monetarist and neoclassical theory, the money supply is determined exogenously. What this means is that the money supply is determined independently of the demand for money_In contrast, Post Keynesians have argued that the money supply is determined endogenously, there is disagreement over the nature of this endogeneity
The changing views on liquidity preference as the boom develops lead to an increase in interest rates, which spark off the process of debt deflation
The global economic instability of the 1990s appears to be better explained in terms of Minsky's theory than that of the financial liberalisationists (McKinnon, 1973; Shaw, 1973)
Summary
In Keynes (1936), and in Monetarist and neoclassical theory, the money supply is determined exogenously. The accommodative approach argues that the central bank has no control over the quantity of money created: all it can do is set the price (interest rate) at which credit is available. Like Rousseas, view central bank behaviour as only partially accommodative that an investment boom can lead to a credit crunch, with rising interest rates.
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