Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/315659 
Year of Publication: 
2025
Citation: 
[Journal:] European Journal of Economics and Economic Policies: Intervention (EJEEP) [ISSN:] 2052-7772 [Volume:] 22 [Issue:] 1 [Year:] 2025 [Pages:] 9-31
Publisher: 
Edward Elgar Publishing, Cheltenham
Abstract: 
We investigate the effects of debt-capital ratio and expected inflation rate on the stability of the economy using a Minsky model and reconsidering Fisher's debt-deflation theory. We have developed static and dynamic models that formalize an inflation-targeting policy. The static model reveals that an increase in the debt-capital ratio may negatively impact the profit rate and that the Fisher proposition is invalid. Our dynamic model indicates that the economy can become endogenously unstable. When the debt-capital ratio is high and the sensitivity of nominal wage rate to the profit rate is higher than that of bank lending, it may lead to debt-deflation. Finally, we demonstrate that the central bank alone can make only a limited contribution to economic stability.
Subjects: 
financial instability hypothesis
debt-deflation theory
bank behavior
portfolio selection
inflation-targeting policy
JEL: 
E12
E44
E52
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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