Article published in The Review of Keynesian Economics.
We examine to which extent the Keen model (Keen 1995) is a faithful modelling of Minsky’s Finance Instability Hypothesis. We focus on debt, money, and debt-induced crisis. We propose a clear interpretation of the debt: households lend unconsumed income to firms to finance their investments, and money creation is not necessary. We offer a detailed description of the economic collapse and analyse its causes thanks to numerical experiments. The crisis is triggered by profits squeezed by wages and not by debt overhang.
We test alternative assumptions on the investors’ behaviour to show that behaviour at very low profits is fundamental. We conclude that the Keen crisis has few Minskian flavours.
Keywords: Keen model, financial crisis, Minsky, endogenous money, investment, debt.
Download the article on the Review’s website
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