Analysis of financial instability in Turkey from a Post Keynesian perspective

According to the Post Keynesian-Minskyan financial instability hypothesis, capitalist economies are inherently unstable and fragile. In capitalist economies, financial crises occur during periods of economic growth as a result of changes in the instinctive behaviour of the actors in the economy. Hyman Minsky, in fact, shows us that it is usually time to take the highest risk when investing has good prospects. In the first periods of economic growth, borrowing increases along with profit rates as a result of self-reinforcing and self-feeding optimism. As the level of borrowing rises and increases, financial assets have considerable difficulty in meeting financial liabilities in the later periods of growth. As a result, events or shocks that occur inside or outside the system change expectations about the future prospects of asset prices, thus triggering a financial crisis. The fact that profit opportunities are open to financial investors in a stable and institutionalised structure, financial intermediaries make financial innovations to maximise their profits, and legal and managerial interventions by monetary authorities cause the financial system to move from its current robust structure to a fragile structure. Financial instability adversely affects economic activities. This effect is replaced by a crisis in time. In a financially underdeveloped economy that frequently encounters crises, growth is adversely affected. In the early periods of economic growth, borrowing increases along with profit rates as a result of optimism that is self-empowering and self-feeding. As the level of borrowing rises and increases, financial assets have great difficulty in meeting financial liabilities in the later periods of growth. As a result, an event or shock that occurs inside or outside the system changes expectations about the future prospects of asset prices, thus triggering a financial crisis. This thesis aims to explain the dynamics of financial crises in Turkey by analysing the definition, causes and consequences of financial instability in depth. Financial instability is defined as a phenomenon that threatens the sustainability of economic systems and Minsky's financial instability hypothesis provides an important framework in this process. Minsky's theories explain the risk-taking tendencies of economic actors, their financial behaviours and the mechanisms by which these behaviours lead to crises. Keywords: Post Keynesian, Financial instability, Crisis, Turkish Crises, Minsky