Learning, Expectations, and the Financial Instability Hypothesis

Martin Guzman and Peter Howitt ()

No 33, Working Papers Series from Institute for New Economic Thinking

Abstract: This paper analyzes what assumptions on formation of expectations are consistent with Minsky’s Financial Instability Hypothesis (FIH) and its corollaries. The FIH establishes that financial relations evolve over time turning a stable system into an unstable one. Financial crises would be more likely to occur, and more severe if they occur, the longer the previous crisis recedes into the past. We show that the hypothesis is consistent with assumptions on formation of expectations that imply learning from realization of states and inconsistent with the assumption of full information rational expectations.

Keywords: Wealth distribution; income distribution; Cambridge theory. (search for similar items in EconPapers)
JEL-codes: D84 E32 F34 G01 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2015-12
New Economics Papers: this item is included in nep-ban, nep-mac and nep-pke
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Citations: View citations in EconPapers (4)

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Related works:
Chapter: Learning, Expectations, and the Financial Instability Hypothesis (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:thk:wpaper:33

DOI: 10.2139/ssrn.2718730

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