Structural Financial Instability
Structural Financial Instability

Summary/Abstract: The paper analyzes the complex dynamics of a sophisticated monetary economy and the role of financial instability. Thus, instability is analyzed in terms of structural instability, rather than in terms of ordinary dynamic instability. This different view of the instability represents a new approach to the analysis of the dynamic behavior of the economic system and of the structural changes. Qualitative changes in the behavior of the economic system are not considered exogenous, but endogenous. Interaction between current financial constraints and inter-temporal financial constraints of the economic units is related to irregular fluctuations at micro and macro level. Beyond certain instability thresholds, the dynamic behavior’s qualitative characteristics changes radically in such a way as to produce irregular cyclical fluctuations. The interaction between the microeconomic fluctuations is able to lead to macroeconomic cyclical fluctuations. The qualitative dynamic analysis analyzes the interaction between financial fragility, modeled in terms of structural instability, and unstable dynamic financial fluctuations.

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