Menu Expand



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.
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.
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]


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

Additional Information

Article Details

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.
  • Email
  • Search in Google Scholar

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.
  • Email
  • Search in Google Scholar


  1. Adrian, Tobias, and Hyun S. Shin (2008): Financial intermediary leverage and value at risk. Federal Reserve Bank of New York, Staff Report no. 338.  Google Scholar
  2. Adrian, Tobias, and Hyun S. Shin (2010): Liquidity and leverage. Journal of Financial Intermediation, 19 (3), July 2010, 418 – 437.  Google Scholar
  3. Adrian, Tobias, and Hyun S. Shin (2014): Procyclical leverage and value-at-risk. Review of Financial Studies, 27 (2), February 2014, 373 – 403.  Google Scholar
  4. Bernanke, Benjamin S. (1995): The Macroeconomics of the Great Depression: A Comparative Approach. Journal of Money, Credit and Banking, 27 (1), February 1995, 1 – 28.  Google Scholar
  5. Bernanke, Benjamin S. (2014): Essays on the Great Depression. Princeton University Press.  Google Scholar
  6. Bernanke, Benjamin S., Mark Gertler, and Simon Gilchrist. (1999): Chapter 21 The financial accelerator in a quantitative business cycle framework. In: J. B. T. and M. Woodford, Handbook of Macroeconomics, 1, 1341 – 1393. Elsevier.  Google Scholar
  7. Borio, Claudio, and Piti Disyatat (2011): Global imbalances and the financial crisis: Link or no link? BIS Working Papers no. 346. Bank for International Settlements.  Google Scholar
  8. De Long, J. Bradford, Andrei Schleifer, Lawrence H. Summers, and Robert J. Waldmann (1990a): Noise Trader Risk in Financial Markets. Journal of Political Economy, 98 (4), August 1990, 703 – 38.  Google Scholar
  9. De Long, J. Bradford, Andrei Shleifer, Lawrence H. Summers, and Robert J. Waldmann (1990): Positive feedback investment strategies and destabilizing rational speculation. Journal of Finance, 45 (2), June 1990, 379 – 395.  Google Scholar
  10. Eggertsson, Gauti B., and Paul Krugman (2012): Debt, deleveraging, and the liquidity trap: A Fisher-Minsky-Koo approach. The Quarterly Journal of Economics, 127 (3), June 2012, 1469 – 1513.  Google Scholar
  11. Erturk, Korkut A. (2006a): Asset Price Bubbles, Liquidity Preference and the Business Cycle. Metroeconomica, 57 (2), April 2006, 239 – 256.  Google Scholar
  12. Erturk, Korkut A. (2006b): Speculation, Liquidity Preference and Monetary Circulation. In: Arestis, P. and Sawyer, Malcolm C., A Handbook of Alternative Monetary Economics. Northampton, MA: Edward Elgar Publishing.  Google Scholar
  13. Fama, Eugene F. (1965): The Behavior of Stock Market Prices. Journal of Business, 38, January 1965, 34 – 105.  Google Scholar
  14. Friedman, Milton (1953): The Case for Flexible Exchange Rates. Essays in Positive Economics, Chicago: Chicago University Press.  Google Scholar
  15. Gennaioli, Nicola, and Andrei Shleifer (2018): A Crisis of Beliefs: Investor Psychology and Financial Fragility. Princeton, NJ: Princeton University Press.  Google Scholar
  16. Keen, Steve (2014): Endogenous money and effective demand. Review of Keynesian Economics, 2 (3), July 2014, 271 – 291.  Google Scholar
  17. Keynes, John M. (1973a): Collected Works of J. M. Keynes, vol. IV, edited by D. E. Moggridge. London: Macmillan for The Royal Economic Society.  Google Scholar
  18. Keynes, John M. (1973b): Collected Works of J. M. Keynes, vol. IV, edited by D. E. Moggridge. London: Macmillan for The Royal Economic Society.  Google Scholar
  19. Keynes, John M. (1973c): Collected Works of J. M. Keynes, vol. XIII, edited by D. E. Moggridge. London: Macmillan for The Royal Economic Society.  Google Scholar
  20. Keynes, John M. (1973d): Collected Works of J. M. Keynes, vol. XXIX, edited by D. E. Moggridge. London: Macmillan for The Royal Economic Society.  Google Scholar
  21. Krugman, Paul (2012): End This Depression Now! W. W. Norton & Company.  Google Scholar
  22. Krugman, Paul, Kathryn M. Dominquez, and Kenneth S. Rogoff (1998): It’s Baaack: Japan’s Slump and the Return of the Liquidity Trap. Brookings Papers on Economic Activity, 1998 (2), January 1998, 137 – 205.  Google Scholar
  23. Lavoie, Marc (1992): Foundations of Post-Keynesian Economic Analysis. Brookfield, VT: Edward Elgar Publishing.  Google Scholar
  24. Lavoie, Marc (1984): The endogenous flow of credit and the post Keynesian theory of money. Journal of Economic Issues, 18 (3), September 1984, 771 – 797.  Google Scholar
  25. Leijonhufvud, Axelrod (1968): Keynesian Economics and the Economics of Keynes. New York: Oxford University Press.  Google Scholar
  26. Minsky, Hyman (1975): John Maynard Keynes. New York: Columbia University Press.  Google Scholar
  27. Minsky, Hyman (2008): Stabilizing an Unstable Economy. New York: McGraw-Hill.  Google Scholar
  28. Moore, Thomas G. (1966): Stock market margin requirements. Journal of Political Economy, 74 (2), April 1966, 158 – 167.  Google Scholar
  29. Özgür, Gokcer, and Korkut A. Ertürk (2013): Endogenous money in the age of financial liberalization. Review of Political Economy, 25 (2), March 2013, 327 – 347.  Google Scholar
  30. Palley, Thomas (1996): Post Keynesian Economics. Debt, Distribution and the Macroeconomy. New York: St. Martin’s Press.  Google Scholar
  31. Palley, Thomas (2012): From financial crisis to stagnation: The destruction of shared prosperity and the role of economics. New York: Cambridge University Press.  Google Scholar
  32. Panetta, Fabio, Paolo Angelini, Ugo Albertazzi, Francesco Columba, Wanda Cornacchia, Antonio Di Cesare, Andrea Pilati, Carmelo Salleo, and Giovanni Santini (2009): Financial sector pro-cyclicality: lessons from the crisis. Bank of Italy Occasional Paper no. 44.  Google Scholar
  33. Robertson, Dennis H. (1931): Mr. Keynes’ Theory of Money. Economic Journal, 41 (163), September 1931, 395 – 411.  Google Scholar
  34. Shiller, Robert J. (2015): Irrational exuberance: Revised and expanded third edition. Princeton, NJ: Princeton University Press.  Google Scholar
  35. Shin, Hyun S. (2012): Global banking glut and loan risk premium. IMF Economic Review, 60 (2), July 2012, 155 – 192.  Google Scholar
  36. Shleifer, Andrei, and Robert W. Vishny (1997): The Limits of Arbitrage. Journal of Finance, 52 (1), March 1997, 35 – 55.  Google Scholar
  37. Wicksell, Knut (1906): Lectures on Political Economy, Vol. 2. Money. translation [1934], London: George Routledge and Sons.  Google Scholar
  38. Wray, L. Randall (2007): Endogenous Money: Structuralist and Horizontalist. Levy Economics Institute, Working Paper no. 512.  Google Scholar


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.