EUR 57.00 For Business Accounts Only

Has recent central bank action compressed or amplified the probability of a Minsky moment?

​A Minsky moment is defined as an unexpected significant collapse in asset prices that is part of the credit or business cycle, after an extended period of market speculation, due to increasing optimism and inflated asset values, partly because of loose monetary conditions (i.e. excess liquidity). A Minsky moment is based on the notion that prolonged periods of speculation will eventually lead to crises, the severity of which depends on the duration of the speculative period.

The current monetary environment has been excessively accommodative, as advanced economy interest rates have been close to the zero bound and, even, in negative territory, and the implementation of unconventional monetary policy tools has provided ample liquidity for more than six years. Some analysts argue that unconventional monetary policy, in particular, creates market distortions and potentially leads to market instability.

As monetary authorities are implementing further monetary stimuli, risk taking could be exacerbated, thus, increasing the probability of Minsky moments.