The Financial Instability Hypothesis was associated with the economist Hyman Minsky, although it could be viewed as Minsky’s interpretation of Keynes. “The financial instability hypothesis, therefore, is a theory of the impact of debt on system behavior and also incorporates the manner in which debt is validated….” “The financial instability hypothesis takes banking seriously as a profit-seeking activity. … Martin Wolfson (1986) not only presents a compilation of data on the emergence of financial relations conducive to financial instability, but also examines various financial crisis theories of business cycles. The financial instability hypothesis suggests that a simplification of financial structure, though difficult to achieve, is a better way of attaining greater stability in the economy. No attempt is made to analyse the evolution of his theory, which appears to have increasingly stressed the endogeneity of … Minsky wrote at length and on numerous occasions,13 on the FIH. Manage Email Summary; ... Minsky's core model is known as "Financial Instability Hypothesis" [FIH], which simply declares stability is inherently destabilizing. As economic theory, the financial instability hypothesis is an interpretation of the substance of Keynes's "General Theory". The second and third explores Minsky’s financial instability hypothesis to explain the fragility and instability of financial system which building on the income-debt analysis in financial behaviour system. Abstract. The Financial Instability Hypothesis (FIH) Minsky on financial instability. The Financial Instability Hypothesis (FIH) has both empirical and theoretical aspects that challenge the classic precepts of Smith and Walras, who implied that the economy can be best understood by assuming that it is constantly an equilibrium-seeking and sustaining system. This is a short study note on Hyman Minsky's financial instability crisis. Minsky postulated that an abnormally long bullish economic growth cycle will spur an asymmetric rise in market speculation that will, eventually, result in market instability and collapse. The financial instability hypothesis argues that the internal dynamics of capitalist economies over time give rise to financial structures, which are prone to debt deflations, the collapse of asset values, and deep depressions. The financial instability hypothesis reiterates one of the main assumptions under Keynesian economics, particularly the notion that a free market economy normally undergoes a boom-and-bust cycle. Minsky had a theory, the "financial instability hypothesis", arguing that lending goes through three distinct stages. Minsky has always warned, “Stability is Destabilizing.” Money managers act as agents. Hence, Minsky’s emphasis on institutions, especially money institutions and consumption can be described as a significant continuation to Post-Keynesian Economics. 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