We examine to which extent the Keen model (Keen 1995) is a faithful modelling of Minsky’s FinanceInstability Hypothesis. We focus on debt, money, and debt-induced crisis. We propose a clear interpretationof the debt: households lend unconsumed income to firms to finance their investments, and money creationis not necessary. We offer a detailed description of the economic collapse and analyse its causes thanksto numerical experiments. The crisis is triggered by profits squeezed by wages and not by debt overhang.We test alternative assumptions on the investors’ behaviour to show that behaviour at very low profits isfundamental. We conclude that the Keen crisis has few Minskian flavours.
Debt and investment in the Keen model: a reappraisal of modeling Minsky
8 March 2017