Transcending the Lucas Critique & simple dynamic modelling with Minsky

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The Lucas Cri­tique has ruled eco­nom­ics for the last 40 years, and led it into a dead-end as well. In this talk to the Eco­nom­ics for Every­one con­fer­ence run by the Post Crash Eco­nom­ics Soci­ety in Man­ches­ter, I argue that micro-found­ed mod­els fail because of the emer­gent prop­er­ties that char­ac­terise com­plex sys­tems. An alter­na­tive approach that tran­scends Lucas’s well-found­ed objec­tion to ad-hoc mod­el-build­ing is to build mod­els from strict­ly true macro­eco­nom­ic iden­ti­ties. I show that three sim­ple identities–the employ­ment rate, the wages share of income, and the pri­vate-debt-to-GDP ratio–are suf­fi­cient to build a sim­ple dynam­ic mod­el that gen­er­ates the pos­si­bil­i­ty of a finan­cial cri­sis. I also give a high-speed but I think com­pre­hen­si­ble tuto­r­i­al on using Min­sky, the Open Source mon­e­tary mod­el­ling pro­gram.

The Presentation
Powerpoint Slides

Minsky Files (right click & choose “Save As” to download)

Files build during this talk

Demo file 1: Good­win

Demo file 2: Good­win

Demo file 3: Min­sky

Files embedded in the presentation

Reduced form


Flow­chart includ­ing God­ley Table




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About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.