Domenico Delli Gatti - Microfoundations for the Vision of Minsky

Delli Gatti starts where his dissertation advisor, Hyman Minsky, left off. With tools from network theory and agent-based modeling, he simulates the economy as enormous web of credit relations. He says agent-based models can capture a simple idea that traditional macro models could not: when a business fails to pay, its creditors may fail to pay -- that's interaction -- threatening to shake the entire web of credit relations. The microfoundations are a step beyond Minsky, the interaction is a step beyond the representative agent -- this is new economic thinking.
http://ineteconomics.org/video/30-ways-be-economist/domenico-delli-gatti-micr...

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• Minsky
• microfoundations

[virtuoustex]

The macroeconomic picture is a mess right now. Debt is no longer being used as a means to increase economic productivity. It is being used to finance zombie banks that should be dead but are not. A big financial institution, like MF Global, can buy a commodities exchange and run it into the ground with no recourse to the institutions leaders. The institution that is supposed to guarantee the clients' investments in segregated accounts do not have to guarantee anything when it falls apart.