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Debt and Financial Sentiment. Early Keynes on Balance Sheet Effects of Asset Price Changes

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  3. Vierteljahrshefte zur Wirtschaftsforschung
  4. Vol. 89, Issue 1
  5. pp. 45–58

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Ertürk, K., Jennings, J. Debt and Financial Sentiment. Early Keynes on Balance Sheet Effects of Asset Price Changes. Vierteljahrshefte zur Wirtschaftsforschung, 89(1), 45-58. https://doi.org/10.3790/vjh.89.1.45
Ertürk, Korkut Alp and Jennings, Jake "Debt and Financial Sentiment. Early Keynes on Balance Sheet Effects of Asset Price Changes" Vierteljahrshefte zur Wirtschaftsforschung 89.1, , 45-58. https://doi.org/10.3790/vjh.89.1.45
Ertürk, Korkut Alp/Jennings, Jake: Debt and Financial Sentiment. Early Keynes on Balance Sheet Effects of Asset Price Changes, in: Vierteljahrshefte zur Wirtschaftsforschung, vol. 89, iss. 1, 45-58, [online] https://doi.org/10.3790/vjh.89.1.45
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Debt and Financial Sentiment. Early Keynes on Balance Sheet Effects of Asset Price Changes

Ertürk, Korkut Alp | Jennings, Jake

Vierteljahrshefte zur Wirtschaftsforschung, Vol. 89 (2020), Iss. 1 : pp. 45–58

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Article Details

Publisher Name
Duncker & Humblot
DOI
https://doi.org/10.3790/vjh.89.1.45
Language
English
Pages
14
Keywords

Author Details

Korkut Alp Ertürk, Department of Economics, University of Utah, Salt Lake City, UT, USA

  • Korkut Alp Ertürk is professor of economics at University of Utah, where he has been teaching since the early 1990 s. He holds degrees from New York University and New School for Social Research. His current research focuses mainly on financial macroeconomics and political economy. He is the author of numerous articles on international speculative capital flows, developing country currency crises and macroeconomic implications of asset price speculation.
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Jake Jennings, Department of Economics, California State University, Chico, CA, USA

  • Jake Jennings is an Assistant Professor of Economics at the California State University, Chico. His research focuses upon macroeconomics, inequality, credit, and asset price inflation. His interests also include economic history, economic development, and history of thought. He attained his PhD from the University of Utah.
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Abstract

Summary: The paper explores the link between financial sentiment and private debt, using Keynes’s A Treatise on Money as a conceptual backdrop. In responding to his critics after the publication of his General Theory Keynes famously talked about unexpected, violent changes in conventional asset valuations resulting from doubts with a life of their own boiling over onto the surface. Such doubts he argued influenced the size of what he called the bear position, which in his Treatise on Money he took to be an index of financial sentiment. Minsky also drew from Keynes’s earlier work when he famously argued that optimistic future expectations raise asset prices, creating a margin that enables firms to access finance in the present. However, neither asset price speculation nor shifting financial sentiment over the business cycle received in his work the kind of attention they did in Keynes’s Treatise. The focus of this paper is what Minsky left unexplored on financial sentiment and the balance sheet effects of asset price changes in the Treatise, which sheds light on when private debt can become excessive. The central insight is that financial sentiment begins to diverge when economic performance unexpectedly falls short, raising doubts that current asset prices are excessive. While the economy might be debt-led when financial sentiment is strong it tends to become debt-burdened as sentiment weakens.

Table of Contents

Section Title Page Action Price
Private Debt 45
Korkut Alp Ertürk, and Jake Jennings: 45
 Debt and Financial Sentiment. Early Keynes on Balance Sheet Effects of Asset Price Changes 45
1 Introduction 46
2 Keynes’s Treatise on Money in Context 47
3 Balance Sheet Effects of Shifts in Asset Price Expectations 50
4 Three Views on what Constrains Bank Lending 45
5 Conclusion 45
References 45

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