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dc.contributor.authorLancastle, Neilen_US
dc.date.accessioned2012-09-14T12:53:05Z-
dc.date.available2012-09-14T12:53:05Z-
dc.date.issued2012en_US
dc.identifier.citationEconomics: The Open-Access, Open-Assessment E-Journal 6 2012-34 =1-27en_US
dc.identifier.pidoi:10.5018/economics-ejournal.ja.2012-34en_US
dc.identifier.urihttp://hdl.handle.net/10419/62591-
dc.description.abstractThis paper asks why modern finance theory and the efficient market hypothesis have failed to explain long-term carry trades; persistent asset bubbles or zero lower bounds; and financial crises. It extends Godley and Lavoie (Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth, 2007) and the Theory of the Monetary Circuit to give a mathematical representation of Minsky's Financial Instability Hypothesis. In the extended circuit, the central bank rate is not neutral and the path is non-ergodic. The extended circuit has survival constraints that include a living wage, a zero interest rate and an upper interest rate. Inflation is everywhere. The possibility of stable carry trades emerges. In high interest rate, hedge economies, powerful banks invest surplus loan interest. With speculation, banks lobby to enter investment markets and the system is precariously liquid/illiquid. In a Ponzi economy, where loans never get repaid, solvency is a balance between increasing reserves, reducing interest rates and rebuilding banks' balance sheets during systemic crises. Simulating bank bailouts, household bailouts and a Keynesian boost suggests that bank bailouts are the least effective intervention, exerting downward pressure on wages and household spending: austerity.en_US
dc.language.isoengen_US
dc.publisherKiel Institute for the World Economy (IfW) Kielen_US
dc.relation.ispartofseriesEconomics 2012-34en_US
dc.subject.jelE10en_US
dc.subject.jelE27en_US
dc.subject.jelE43en_US
dc.subject.jelE58en_US
dc.subject.jelE60en_US
dc.subject.ddc330en_US
dc.subject.keywordcircuit theoryen_US
dc.subject.keywordmacroeconomic simulationen_US
dc.subject.keywordcarry tradeen_US
dc.subject.keywordausterityen_US
dc.subject.keywordbanking regulationen_US
dc.subject.keywordinterest rate policyen_US
dc.subject.stwFinanzmarktkriseen_US
dc.subject.stwWirtschaftliche Instabilitäten_US
dc.subject.stwGeldtheorieen_US
dc.subject.stwGeldumlaufen_US
dc.subject.stwWertpapierspekulationen_US
dc.subject.stwBankenpolitiken_US
dc.subject.stwZinspolitiken_US
dc.subject.stwTheorieen_US
dc.titleCircuit theory extended: The role of speculation in crisesen_US
dc.typeArticleen_US
dc.identifier.ppn72411291Xen_US
dc.rights.licensehttp://creativecommons.org/licenses/by-nc/2.0/de/deed.enen_US
dc.identifier.repecRePEc:zbw:ifweej:201234-
Appears in Collections:Economics: The Open-Access, Open-Assessment E-Journal - Journal Articles

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