2013 Fiscal Year Final Research Report

A theoretical study on the financial instability hypothesis

Research Project

Project/Area Number	24730267
Research Category	Grant-in-Aid for Young Scientists (B)
Allocation Type	Multi-year Fund
Research Field	Public finance/Monetary economics
Research Institution	Nagoya University
Principal Investigator	FUJITA Shinya 名古屋大学, 経済学研究科(研究院), 准教授 (80452184)
Project Period (FY)	2012-04-01 – 2014-03-31
Keywords	金融不安定性 / 景気循環 / 金融化 / 労働供給制約
Research Abstract	This study investigates the mechanism of the financial instability process a la H. P. Minsky by using Keynesian dynamic macro-models. Our results are summarized as follows. First, if investment responds strongly to retained profits, a decrease in the retention ratio reduces the long-run rate of capital accumulation and raises the debt-capital ratio. Second, if a negative shock makes the debt-capital ratio sufficiently high, then the economy becomes unstable and the financial structure of firms moves from sound position called the Speculative finance to the more risky position called Ponzi finance. Third, if we consider the long-run case where labor supply constraints influence economic growth, then the financial position circulates between the Speculative finance and Ponzi finance regimes.