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- Title
Minsky Financial Instability, Interscale Feedback, Percolation and Marshall-Walras Disequilibrium.
- Authors
Solomon, Sorin; Golo, Natasa
- Abstract
We study analytically and numerically Minsky instability as a combination of top-down, bottom-up and peer-to-peer positive feedback loops. The peer-to-peer interactions are represented by the links of a network formed by the connections between firms; contagion leading to avalanches and percolation phase transitions propagating across these links. The global parameter in the top-bottom - bottom-up feedback loop is the interest rate. Before the Minsky Moment, in the 'Minsky loans accelerator' stage the relevant 'bottom' parameter representing the individual firms' micro-states is the quantity of loans. After the Minsky Moment, in the 'Minsky crisis accelerator' stage, the relevant 'bottom' parameters are the number of ponzi units/quantity of failures/defaults. We represent the top-bottom, bottom-up interactions on a plot similar to the Marshall-Walras diagram for quantity-price market equilibrium (where the interest rate is the analog of the price). The Minsky instability is then simply emerging as a consequence of the fixed point (the intersection of the supply and demand curves) being unstable (repulsive). In the presence of network effects, one obtains more than one fixed point and a few dynamic regimes (phases). We describe them and their implications for understanding, predicting and steering economic instability.
- Publication
Accounting, Economics & Law, 2013, Vol 3, Issue 3, p167
- ISSN
2194-6051
- Publication type
Article
- DOI
10.1515/ael-2013-0029