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Statistical Analysis of Minsky’s Financial Instability Hypothesis for the 1945–2023 Era

Author

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  • Linh N. Phan

    (Industrial, Manufacturing & Systems Engineering Department, Texas Tech University, Lubbock, TX 79409, USA)

  • Mario G. Beruvides

    (Industrial, Manufacturing & Systems Engineering Department, Texas Tech University, Lubbock, TX 79409, USA)

  • Víctor G. Tercero-Gómez

    (School of Engineering and Sciences, Tecnologico de Monterrey, Monterrey 64700, Mexico)

Abstract

Following the 2008 financial crisis, Hyman Minsky’s Financial Instability Hypothesis (FIH) emerged as a prominent financial theory to explain the occurrence of business cycles in the U.S. economy. There have been many theoretical, but few empirical studies dedicated to FIH. The current literature also lacks the statistical support to confirm the necessary conditions leading to financial instability and whether FIH concepts remains applicable in the post 1980s periods. This article presents a statistical methodology to analyze the financial debt ratios related to FIH for the 1945–2023 periods through the use of nonparametric statistical analyses of ordered alternatives and a binomial test for meta-analysis. The results indicated that the conditions leading to financial instability such as debt ratios did increase prior to the onset of a recession as prescribed by FIH during the 1945–1980s era. Furthermore, such conditions also repeated prior to some recessions occurred in the 2001–2023 periods. This study provides statistical support for Minsky’s FIH theory.

Suggested Citation

  • Linh N. Phan & Mario G. Beruvides & Víctor G. Tercero-Gómez, 2024. "Statistical Analysis of Minsky’s Financial Instability Hypothesis for the 1945–2023 Era," JRFM, MDPI, vol. 17(1), pages 1-18, January.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:1:p:32-:d:1319300
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    References listed on IDEAS

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    1. Greg Hannsgen, 2005. "Minsky's acceleration channel and the role of money," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 27(3), pages 471-489.
    2. Susan Schroeder, 2009. "Defining and detecting financial fragility: New Zealand's experience," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 36(3), pages 287-307, February.
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    Cited by:

    1. Ramalingam Shanmugam & Brad Beauvais & Diane Dolezel & Rohit Pradhan & Zo Ramamonjiarivelo, 2024. "The Probability of Hospital Bankruptcy: A Stochastic Approach," IJFS, MDPI, vol. 12(3), pages 1-23, August.

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