The Minskyan System, Part II

This is the second part of a three-part analysis of the Minskyan framework. It studies in detail the
dynamics at the root of the endogenous financial weakening of capitalist economic systems. This
part combines the properties presented in part I with other important concepts, such as the
paradox of leverage and conventional expectations, to explain the Financial Instability
Hypothesis. It is demonstrated that the signs of fragility are not always visible and that financial
weakening can take many different (even though well-defined) routes. This is used to draw some
conclusion about the appropriate way to test for this hypothesis and the limit of data.