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 market—by
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 economy—not a
model of the whole economy. However, such partial models can be used to
anticipate financial bubbles—hence bank runs and recessions due to bank
runs—which typically follow.
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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