"Minsky Moments, Russell Chickens, and Gray Swans--The Methodological Puzzles of the Financial Instability Analysis"

The recent revival of Hyman P. Minsky's ideas among policymakers, economists, bankers, financial institutions, and the mass media, synchronized with the increasing gravity of the subprime financial crisis, demands a reappraisal of the meaning and scope of the "financial instability hypothesis" (FIH). We argue that we need a broader approach than that conventionally pursued, in order to understand not only financial crises but also the periods of financial calm between them and the transition from stability to instability. In this paper we aim to contribute to this challenging task by restating the strictly financial part of the FIH on the basis of a generalization of Minsky's taxonomy of economic units. In light of this restatement, we discuss a few methodological issues that have to be clarified in order to develop the FIH in the most promising direction.Financial Instability; Financial Fragility; Financial Fluctuations; Subprime Crisis; Minsky Moments; Minsky Meltdown; Speculative Units; Hedge Units; Ponzi Units; Business Cycles

"A Perspective on Minsky Moments--The Core of the Financial Instability Hypothesis in Light of the Subprime Crisis"

This paper aims to help bridge the gap between theory and fact regarding the so-called "Minsky moments" by revisiting the "financial instability hypothesis" (FIH). We limit the analysis to the core of FIH--that is, to its strictly financial part. Our contribution builds on a reexamination of Minsky's contributions in light of the subprime financial crisis. We start from a constructive criticism of the well-known Minskyan taxonomy o f financial units (hedge, speculative, and Ponzi) and suggest a different approach that allows a continuous measure of the unit's financial conditions. We use this alternative approach to account for the cyclical fluctuations of financial conditions that endogenously generate instability and fragility. We may thus suggest a precise definition of the "Minsky moment" as the starting point of a Minskyan process--the phase of a financial cycle when many financial units suffer from both liquidity and solvency problems. Although the outlined approach is very simple and has to be further developed in many directions, we may draw from it a few policy insights on ways of stabilizing the financial cycle.Financial Instability; Financial Fragility; Financial Fluctuations; Subprime Crisis; Minsky Moments; Minsky Meltdown; Speculative Units; Hedge Units; Ponzi Units

Greenhouse gas emissions and the energy system: decomposition analysis and the environmental Kuznets curve

This paper discusses to what extent the recent trends in energy consumption and production are compatible with the requirements of sustainable development. For this purpose, starting from a simple identity applied to the energy sector, we use the decomposition analysis to derive a few analytical requirements for the long-term sustainability of the energy system and examine whether they are satisfied on the basis of the currently available data. From the analysis conducted in the paper, it emerges that an Environmental Kuznets Curve in energy intensity and/or carbon intensity may be insufficient to satisfy the sustainability conditions identified in the paper. Moreover, using simple graphical analysis, we show that the decomposition approach and the EKC imply two different relationships between per capita income (y) and carbon intensity (gy) and discuss the relative implications.sustainable development, energy, global warming, environmental Kuznets curve, decomposition analysis, Kaya identity

GLOBAL HEALTH

The process of globalisation affects more and more the life quality of people around the world. In particular it impinges in different ways upon their health. In its turn the health of people affects the demographic and economic growth as well as their sustainability. However, notwithstanding the fundamental importance of this feedback, the nexus between globalisation, sustainable development and health has been insufficiently analysed. This paper aims to explore the main channels of influence through which the recent process of globalisation has affected the health of people, exerting an important influence on the sustainability of world development. To this end we try to identify the principal, direct and indirect, empirical correlations between the main features of globalisation and different indices of health; we proceed then to a preliminary discussion of their causal contents. The indirect correlations run in both directions. This feature turns out to be particularly important since the feed-back between the main intermediate variables (income growth, income inequality and environmental degradation) and different aspects of health plays a crucial role in determining the sustainability of world development.globalisation; inequality; environmental degradation; economic growth;

Financial Fragility and Economic Fluctuations: Numerical Simulations and Policy Implications

This paper proposes a simple prototype model that describes the complex dynamics of a sophisticated monetary economy. The interaction between the current and intertemporal financial constraints of economic units brings about irregular fluctuations at the micro and macro levels. By means of qualitative dynamic analysis and numerical simulations, we reformulate in more operational terms, and extend in a number of new directions, the model suggested recently by one of the authors (Vercelli, 2000) to study the interaction between financial fragility, modelled in terms of structural instability, and dynamically unstable financial fluctuations.Complex dynamics, Structural instability; Financial fragility; Economic fluctuations; Numerical simulations

Globalisation, Inequality and Health

As we suggested in a previous work (Borghesi and Vercelli, Sustainable globalisation, Ecological Economics, vol.44, n.1, 2003), the process of globalisation affects the sustainability of development mainly through three channels: economic growth, inequality and environmental degradation. This conceptual framework may help us to understand also the causal influence of globalisation on health that represents a fundamental dimension of the quality of life enjoyed by the people and of sustainability. For this purpose, the present paper aims to investigate both the direct and the indirect effects of post-war globalisation, with particular attention to the role played by inequality in the globalisation-health relationship. A few policy implications emerging from the analysis are also discussed, suggesting a policy strategy that can at the same time improve health and make the current globalisation process more compatible with sustainable development.globalisation, inequality, health, sustainable development

CSR, rationality and the ethical preferences of investors in a laboratory experiment

This experimental study aims to clarify to what extent and in which direction investors react to CSR (Corporate Social Responsibility) initiatives meant to upgrade the ethical standards of firms beyond the minimal requirements of law. Subjects in the laboratory were invited to invest their endowment in a portfolio of financial assets. We provided information on the expected returns of each stock and on its inclusion in an ethical index, or exclusion from it. Our findings show that subjects’ behavior appears to be a function not only of their individual pay-offs but also of the information on the ethical standards of the firms issuing stocks. Most of them, however, did not show a fully irrational behavior as they consistently correlated the share of stocks with their expected returns. We may conclude that the sizeable reaction of our sample’s investors to the inclusion of a stock in the ethical index, or its exclusion from it, is the fruit of a deliberate choice

Genesis and foundations of the multiplier: Marx, Kalecki and Keynes

This paper explores the Marxian genetic root of the multiplier in order to clarify its foundations and validity conditions. Though the analysis is restricted to the first two volumes of Capital and the early contributions by Kalecki in the 1930s, we argue that we can draw from these works valuable insights into the theoretical and empirical scope of the Kahn-Keynes multiplier