Modeling financial crises: a schematic approach

Abstract

John Maynard Keynes argued that crises were systemic and that, unless serious reforms were implemented, they would tend to grow in frequency and severity. The paper sets out to build a Keynes-style model of crises that captures both the unique characteristics of each type and their common roots. A schematic method is employed that traces the processes in time and shows how events become interrelated and mutually causal. This permits us, as much as possible, to see everything at once—a necessity when the buildup to a crisis may manifest itself in so many places.

Keywords:

• financial crisis
• Keynes
• Minsky