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dc.contributor.authorLancastle, Neilen
dc.date.accessioned2012-09-14T12:53:05Z-
dc.date.available2012-09-14T12:53:05Z-
dc.date.issued2012-
dc.identifier.citation|aEconomics: The Open-Access, Open-Assessment E-Journal|c1864-6042|v6|h2012-34|nKiel Institute for the World Economy (IfW)|lKiel|y2012|p1-27en
dc.identifier.pidoi:10.5018/economics-ejournal.ja.2012-34en
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
dc.language.isoengen
dc.publisher|aKiel Institute for the World Economy (IfW) |cKielen
dc.subject.jelE10en
dc.subject.jelE27en
dc.subject.jelE43en
dc.subject.jelE58en
dc.subject.jelE60en
dc.subject.ddc330en
dc.subject.keywordcircuit theoryen
dc.subject.keywordmacroeconomic simulationen
dc.subject.keywordcarry tradeen
dc.subject.keywordausterityen
dc.subject.keywordbanking regulationen
dc.subject.keywordinterest rate policyen
dc.subject.stwFinanzmarktkriseen
dc.subject.stwWirtschaftliche Instabilitäten
dc.subject.stwGeldtheorieen
dc.subject.stwGeldumlaufen
dc.subject.stwWertpapierspekulationen
dc.subject.stwBankenpolitiken
dc.subject.stwZinspolitiken
dc.subject.stwTheorieen
dc.titleCircuit theory extended: The role of speculation in crises-
dc.typeArticleen
dc.identifier.ppn72411291Xen
dc.rights.licensehttp://creativecommons.org/licenses/by-nc/2.0/de/deed.enen
dc.identifier.repecRePEc:zbw:ifweej:201234en
econstor.citation.journaltitleEconomics: The Open-Access, Open-Assessment E-Journalen
econstor.citation.issn1864-6042en
econstor.citation.volume6en
econstor.citation.issue2012-34en
econstor.citation.publisherKiel Institute for the World Economy (IfW)en
econstor.citation.publisherplaceKielen
econstor.citation.year2012en
econstor.citation.startpage1en
econstor.citation.endpage27en

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