Debt-GDP Cycles in Historical Perspective: The Case of the USA (1889-2014)

TY - JOUR

T1 - Debt-GDP Cycles in Historical Perspective: The Case of the USA (1889-2014)

AU - Stockhammer, Engelbert

AU - Gouzoulis, Giorgos

PY - 2022/9/20

Y1 - 2022/9/20

N2 - Since the Global Financial Crisis, interest in financial cycles has risen significantly. While much of modern macroeconomics conceives financial crises as the results of exogenous shocks, Minsky’s financial instability hypothesis posits that financial cycles are endogenous to the economic system. The main contribution of this paper is to use historical macroeconomic data for the United States (1889–2014) to econometrically test for endogenous Minsky cycles: the interaction of procyclical private debt-to-income ratios and a dampening effect of private debt on economic activity. We analyze corporate debt-gross domestic product (GDP) growth cycles, which feature in Minsky’s original writings, and mortgage debt-GDP growth cycles as in some recent Minsky-inspired models. We find robust evidence of endogenous corporate debt-GDP cycles over the last 125 years. These results are driven by the pre-World War II (WWII), and post-1973 periods, which had a more liberal economic policy orientation. We find no evidence of mortgage debt-GDP cycles.

AB - Since the Global Financial Crisis, interest in financial cycles has risen significantly. While much of modern macroeconomics conceives financial crises as the results of exogenous shocks, Minsky’s financial instability hypothesis posits that financial cycles are endogenous to the economic system. The main contribution of this paper is to use historical macroeconomic data for the United States (1889–2014) to econometrically test for endogenous Minsky cycles: the interaction of procyclical private debt-to-income ratios and a dampening effect of private debt on economic activity. We analyze corporate debt-gross domestic product (GDP) growth cycles, which feature in Minsky’s original writings, and mortgage debt-GDP growth cycles as in some recent Minsky-inspired models. We find robust evidence of endogenous corporate debt-GDP cycles over the last 125 years. These results are driven by the pre-World War II (WWII), and post-1973 periods, which had a more liberal economic policy orientation. We find no evidence of mortgage debt-GDP cycles.

U2 - 10.1093/icc/dtac043

DO - 10.1093/icc/dtac043

M3 - Article

SN - 0960-6491

VL - 32

JO - INDUSTRIAL AND CORPORATE CHANGE

JF - INDUSTRIAL AND CORPORATE CHANGE

IS - 2

M1 - dtac043

ER -