Disequilibrium Pricing Theory—Bubbles and Recessions


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.

Share and Cite:

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.


[1] B. Appelbaum, “Days before 2007 Crisis, Fed Officials Doubted Need to Act,” New York Times, 2013.
[2] C. Giles, “King admits failing to ‘shout’ about risk,” Financial Times, May 2, 2012.
[3] P. Krugman., “The B Word,” The New York Times, 2009.
[4] C. P. Kindelberger and Z. A. Robert, “Manias, Panics, and Crashes: A History of Financial Crises,” 6th Edition, Palgrave Macmillan, Basingstoke, 2011.
[5] P. Blustein, “The Chastening: Inside the Crisis That Rocked the Global Financial System and Humbled the IMF,” Public Affairs Books, New York, 2003.
[6] M. Wolf, “Why Greenspan Does Not Bear Most of the Blame,” Financial Times, 2008.
[7] B. S. Bernanke, “Global Imbalances: Recent Developments and Prospects,” Budesbank Lecture, Berlin, 2007.
[8] H. P. Minsky, “Can ‘It’ Happen Again? Essays on Instability and Finance,” M.E. Sharpe Inc., 1982.
[9] Hyman. Minsky, “Comment on Ben Bernanke, ‘Credit in the Macro-Economy’,” Hyman P. Minsky Archive, Paper 361, Betz, Frederick. 2011. Societal Dynamics. Springer, New York, 1993.
[10] F. Betz, “Why Bank Panics Matter,” Springer, New York, 2013.
[11] I. Fisher, “The Debt-Deflation Theory of the Great Depression,” Econometrica, 1933.
[12] P. McCulley, “Saving Capitalistic Banking from Itself,” PIMCO, 2009.
[13] F. Betz, “Societal Dynamics,” Springer, New York, 2011.

Copyright © 2024 by authors and Scientific Research Publishing Inc.

Creative Commons License

This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.