ABSTRACT
This chapter explains how economic structures create floors and ceilings that contain unstable macroeconomic dynamics. The addition of ceilings and floors or, more generally, 'thwarting mechanisms' to unstable models helps to resolve the intellectual tension. The local dynamics of a model may well be unstable, but other mechanisms contain the explosive or implosive dynamics so that the overall dynamic path predicted from the model may appear stable, as is broadly consistent with the history of recent decades. Instability can arise from multiplier, accelerator quantity dynamics, financial instability as emphasized in the work of Hyman Minsky, or a combination of both. If the engine of economic instability in recent years came from household demand, we must immediately face an issue in explaining the critical dynamics of the Great Recession with the framework of Ferri et al. Minsky, in particular, focuses almost exclusively on financial instability arising from business borrowing for capital investment.
