When Two Minskyan Processes Meet a Large Shock: The Economic Implications of the Pandemic

Michalis Nikiforos

Economics Policy Note Archive from Levy Economics Institute

Abstract: The spread of the new coronavirus (COVID-19) is a major shock for the US and global economies. Research Scholar Michalis Nikiforos explains that we cannot fully understand the economic implications of the pandemic without reference to two Minskyan processes at play in the US economy: the growing divergence of stock market prices from output prices, and the increasing fragility in corporate balance sheets. The pandemic did not arrive in the context of an otherwise healthy US economy--the demand and supply dimensions of the shock have aggravated an inevitable adjustment process. Using a Minskyan framework, we can understand how the current economic weakness can be perpetuated through feedback effects between flows of demand and supply and their balance sheet impacts.

Date: 2020-03
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