TY - JOUR
T1 - An empirical analysis of Minsky regimes in the US economy
AU - Davis, Leila E.
AU - De Souza, Joao Paulo A.
AU - Hernandez, Gonzalo
N1 - Publisher Copyright:
©The Author(s) 2019. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.
PY - 2019/4/11
Y1 - 2019/4/11
N2 - In this paper, we analyse Minskian dynamics in the US economy via an empirical application of Minsky’s financing regime classifications to a panel of nonfinancial corporations. First, we map Minsky’s definitions of hedge, speculative and Ponzi finance onto firm-level data to describe the evolution of Minskian regimes. We highlight striking growth in the share of Ponzi firms in the post-1970 US, concentrated among small corporations. This secular growth in the incidence of Ponzi firms is consistent with the possibility of a long wave of increasingly fragile finance in the US economy. Second, we explore the possibility of short-run Minskian dynamics at a business cycle frequency. Using linear probability models relating firms’ probability of being Ponzi to the aggregate output gap, which captures short-term macroeconomic fluctuations exogenous to individual firms, we find that the relationship between aggregate downturns and the probability of being Ponzi is statistically significant, but very small (almost zero). This result is corroborated by quantile regressions using a continuous measure of financial fragility, the interest coverage ratio, which identify almost zero effects of short-term fluctuations on financial fragility across the interest coverage distribution. Together, these results speak to an important question in the theoretical literature on financial fragility regarding the duration of Minskian cycles, and lend support, in particular, to the contention that Minskian dynamics may take the form of long waves, but do not operate at business cycle frequencies.
AB - In this paper, we analyse Minskian dynamics in the US economy via an empirical application of Minsky’s financing regime classifications to a panel of nonfinancial corporations. First, we map Minsky’s definitions of hedge, speculative and Ponzi finance onto firm-level data to describe the evolution of Minskian regimes. We highlight striking growth in the share of Ponzi firms in the post-1970 US, concentrated among small corporations. This secular growth in the incidence of Ponzi firms is consistent with the possibility of a long wave of increasingly fragile finance in the US economy. Second, we explore the possibility of short-run Minskian dynamics at a business cycle frequency. Using linear probability models relating firms’ probability of being Ponzi to the aggregate output gap, which captures short-term macroeconomic fluctuations exogenous to individual firms, we find that the relationship between aggregate downturns and the probability of being Ponzi is statistically significant, but very small (almost zero). This result is corroborated by quantile regressions using a continuous measure of financial fragility, the interest coverage ratio, which identify almost zero effects of short-term fluctuations on financial fragility across the interest coverage distribution. Together, these results speak to an important question in the theoretical literature on financial fragility regarding the duration of Minskian cycles, and lend support, in particular, to the contention that Minskian dynamics may take the form of long waves, but do not operate at business cycle frequencies.
KW - Financial fragility
KW - Firm behaviour
KW - Minsky cycles
UR - http://www.scopus.com/inward/record.url?scp=85072344811&partnerID=8YFLogxK
U2 - 10.1093/cje/bey061
DO - 10.1093/cje/bey061
M3 - Article
AN - SCOPUS:85072344811
SN - 0309-166X
VL - 43
SP - 541
EP - 584
JO - Cambridge Journal of Economics
JF - Cambridge Journal of Economics
IS - 3
ER -