Post Keynesian Theories of Crisis

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Abstract

Post Keynesian economics has two complementary theories of crisis that were used to predict the 2007 crisis and diagnose its causes: Minsky's financial instability hypothesis and Godley's stock-flow-consistent approach. Both theories take a monetary perspective on capitalism and argue that the dynamics of private debt caused the crisis. As well as explaining the crisis and enabling its occurrence (though not precise timing) to be predicted, both theories imply that the current recovery will be short-lived because the underlying cause of the last crisis has not been addressed by subsequent economic policy.

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