TITLE:
Disequilibrium Pricing Theory—Bubbles and Recessions
AUTHORS:
Frederick Betz
KEYWORDS:
Economic Recessions; Financial Bubbles; Bank Panics
JOURNAL NAME:
Theoretical Economics Letters,
Vol.4 No.1,
February
12,
2014
ABSTRACT: 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.