The Minsky pyramid: an alternative presentation of the financial instability hypothesis

Abstract

ABSTRACT  This paper proposes an alternative interpretation of Minsky’s financial instability hypothesis, relying on the figure of a pyramid to represent this theory. This allows us to discuss both the static component of the theory, combining connections of uncertainty, preference for liquidity, and investment determinants, and its dynamic component, with the reconfiguration of investments and forms of financing considering the results from previous choices. The changes in the structure of this pyramid are the key to understanding how the weakening of portfolios throughout the economic cycle might lead to the complete deterioration of this pyramid, in a clear analogy with the emergence of economic crises in capitalist economies characterized by complex financial relations.

KEYWORDS:
Minsky; Financial instability hypothesis; Investment; Economic crisis; Minsky moment