An analysis of Turkish economy with Goodwin-Minsky-Keen Model and system dynamics method

In the Financial Instability Hypothesis, Hyman Minsky stated that the economy is destabilized due to investors' investment decisions in a capitalist economy. In this hypothesis, Minsky emphasized that financial relations in developed capitalist economies shouldn't be ignored. Minsky also asserted that the government must be big to prevent instability in the economy. Steve Keen developed the mathematical aspect of Minsky's hypothesis based on Goodwin's growth model, which explains the relations between labor and capital, and by adding the debt that actualise investments, financial sector and money factor to his model. Besides, Keen extended the Goodwin model by adding the government sector with functions that define public spending and taxes. In this study, the Goodwin – Minsky – Keen model, in which the government exists and does not exist, is analyzed for Turkish economy with the system dynamics method. Both models were run with various scenarios using the data of the Turkish economy, and hence it was tried to show how and which variables could provide stability in the economy. In this study, it was concluded that the government intervention in the private sector with capital transfers and taxes could contribute to the economic stability in Turkish economy. Keywords: Minsky's financial instability hypothesis, Goodwin growth model, Keen's model, dynamic systems, system dynamics