A monetary Minsky model of the Great Moderation and the Great Recession

Steve Keen's model of Minsky's Financial Instability Hypothesis (Keen, 1995) displayed qualitative characteristics that matched the real macroeconomic and income-distributional outcomes of the preceding and subsequent fifteen years: a period of economic volatility followed by a period of moderation, leading to a rise of instability once more and a serious economic crisis. This paper extends that model to build a strictly monetary macroeconomic model which can generate the monetary as well as the real phenomena manifested by both The Great Recession and The Great Moderation.

Research highlights► Explicitly monetary model of Minsky's Financial Instability Hypothesis. ► Reproduces stylized facts of Great Moderation and Great Recession. ► Showcases new tabular method for developing dynamic models of financial flows.