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Studies on Balkan and Near Eastern Social Sciences – Volume 3

Edited By Rasim Yilmaz and Günther Löschnigg

The third volume of «Studies on Balkan and Near Eastern Social Sciences» is a collection of empirical and theoretical research papers in the social sciences regarding the Balkans and the Near East written by researchers from several different universities and institutions. The book addresses economic, financial, political, sociological, international relations, health, cultural, and feminist issues in the region of the Balkan and Near East. The book is aimed at educators, researchers, and students interested in the Balkan and Near Eastern countries.

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Explanation of Financial Crises by Hyman Minsky’s Financial Instability Hypothesis

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Introduction

The economic crises around the world have been one of the most debated issues in the economic literature. Different views have been put forward on the causes and consequences of these crises that have emerged in tentative intervals. Therefore, it is necessary to start with different definitions in defining the crises. Economic fluctuations are periodic but irregular increase or decrease in economic activities. In other words, they are sudden and severe fluctuations in financial markets and commodity markets. This study examines the anatomical structure of the global economic crisis in 2008 which is one of the most important crises in the world and discusses the explanation of this crisis by Minsky’s “Financial Instability Hypothesis”.

According to Minsky (1986), financial crises are the fluctuations that occur as a result of the gradual borrowing periods of firms and financial markets during business cycles. These gradual borrowing periods are called by Minsky as hedge, speculative, and Ponzi and they correspond to safe, fragile, and collapse periods, respectively. Excessive profit expectations in future, investments, investment financing, borrowing rates, and problems in debt repayments are basic elements that create instability within the capitalist economic system (Minsky, 1986: 325).

Minsky’s Financial Instability Hypothesis and Interactions in Economic Literature

Marx defines crises as tendency of excessive production and profit rates to fall in the process of capitalist development (Sweezy, 1942). On the other hand, Gouverneour (2005) categorizes the crisis as cyclical (conjunctural) and structural. While formation...

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