Computer based Minsky Model Uses Money and Debt to Simulate Economies

September 26, 2011

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Steve Keen has been early on calling the Australian housing market a bubble. He’s a Minsky disciple, placing a heavy emphasis on analyzing debt. His goal is to turn Minsky’s verbal theory into a computer model.

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Conventional economic models do not consider the role of debt and money in their models (!)

Professor Keen says his program will make it easy to develop “dynamic” models of the economy that incorporate money and debt – something that orthodox models do not do.

“[About] 99 per cent of economic models assume money doesn’t exist. They assume you live in a barter system … That’s why they didn’t see the financial crisis coming,” he said.

“I’ve worked to find if I can build a truly monetary model of capitalism … [and] this is probably the only dynamic monetary model ever produced.”

“My model starts with banks’ loans and goes from there.”

HS : Krugman believes debt does not matter, which is why he advocates the government spend until it’s broke. His theory is that every debt from a borrower is an asset to the lender. The problem is debt is no longer an asset when debtor can not pay the money back. Steve Keen’s model looks promising since credit growth is the number one predictor of crises.

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