Abstract
Most models of financial markets, trade and business cycles start from an assumed state of equilibrium and then describe how the economy becomes increasingly unbalanced and stressed. Prices rise as full employment and full capacity are approached. The trade balance falls into deficit as raw materials and import prices rise. Interest rates also rise as business upswings heat up. Higher interest rates attract foreign loan inflows to stabilise the balance of payments, but this builds up foreign indebtedness, whose carrying charges are met by yet new borrowing.
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Sommers, J., Bezemer, D., Hudson, M. (2010). Ponzi from the Start: The Human Cost of Financial Instability in Latvia. In: Tavasci, D., Toporowski, J. (eds) Minsky, Crisis and Development. Palgrave Macmillan, London. https://doi.org/10.1057/9780230292321_14
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DOI: https://doi.org/10.1057/9780230292321_14
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