Disequilibrium Pricing Theory—Bubbles and Recessions

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.

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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.

Conflicts of Interest

The authors declare no conflicts of interest.

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