An empirical analysis of Minsky regimes in the US economy

Abstract

In this paper we analyze 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 aggregate downturns are correlated with an almost zero increased probability that firms are Ponzi. This result is corroborated by quantile regressions using a continuous measure of financial fragility, the interest coverage ratio, which identify almost zero e↵ects 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.

Minsky Models: A Structured Survey

“…Our survey has focused on theoretical models, but it is the case that the Minsky literature so far has concentrated on theoretical modelling and there is only a handful of rigorous empirical papers (e.g. Schroeder, 2009;Mulligan, 2013;Nishi, 2016;Davis et al, 2017) which often focus on specific mechanisms (such as the pro-cyclical debt ratio) rather than testing the models discussed in this survey. There are three sets of questions that follow from this survey: What are the main points of differences between the Minsky models?…”

Minsky Models: A Structured Survey

“…Our survey has focused on theoretical models, but it is the case that the Minsky literature so far has concentrated on theoretical modeling and there is only a handful of rigorous empirical papers (e.g. Schroeder, ; Mulligan, ; Nishi, ; Davis et al ., ) which often focus on specific mechanisms (such as the pro‐cyclical debt ratio) rather than testing the models discussed in this survey. There are four sets of questions that follow from this survey: What are the main points of differences between the Minsky models?…”

Corporate debt in Latin America and its macroeconomic implications

“…There are a few studies that provide measurable criteria and a threshold for distinguishing between the hedge, speculative, and Ponzi categories. These include Mulligan (2013), Nishi (2016), Davis, Souza, and Hernandez (2017), and Torres Filho, Marins, and Miaguti (2017), as summarized in table 4 by highlighting the objective, data, time domain, definition, thresholds for financing regimes (hedge, speculative, and Ponzi), and measurement for each. 8 We use the first and the last available of these studies (Mulligan [2013] andTorres Filho, Marins, andMiaguti [2017]) to classify our sample of non-bond-issuing and bond-issuing firms for the years 2010 and 2015 into hedge, speculative, and Ponzi categories according to the criteria and thresholds provided by the authors.…”