Minsky's Financial Instability Hypothesis : A Modern Examination

Abstract

Working throughout the second half of the twentieth century, economist Hyman Minsky argued that the cyclicality and instability of the world's economies is the result of financial mechanisms. The dynamics presented by his landmark work, the Financial Instability Hypothesis, have been applied by many to the 2007/08 financial crisis and the ensuing recession, and the term "Minsky Moment" has become synonymous with post expansion private debt crises. However, the existing journalistic and academic literature relating to Minsky's works is often founded upon a shallow understanding of his arguments, and there are important implications of his hypotheses which should be considered by policymakers. This article seeks to rectify these shortcomings by providing a more holistic explanation of Minsky's Financial Instability Hypothesis, while briefly exploring its policy considerations.