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Disequilibrium Pricing Theory—Bubbles and Recessions

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DOI: 10.4236/tel.2014.41009    3,128 Downloads   4,418 Views   Citations
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ABSTRACT

How can one track a financial bubble as a likely precursor to bank panics and subsequent recessions? We model the Minsky-Keynes depiction of a financial marketby extending the “equilibrium-price” model to a “disequilibrium-price” model, through adding a third dimension of time. In this way, we use a topological graphic approach to see how the models from the two schools of economics, exogenous and endogenous, relate to each other as complementary models of production and financial sub-systems. These economic models are partial models in an economynot a model of the whole economy. However, such partial models can be used to anticipate financial bubbleshence bank runs and recessions due to bank runswhich typically follow.

Conflicts of Interest

The authors declare no conflicts of interest.

Cite this paper

F. Betz, "Disequilibrium Pricing Theory—Bubbles and Recessions," Theoretical Economics Letters, Vol. 4 No. 1, 2014, pp. 60-67. doi: 10.4236/tel.2014.41009.

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