Debt-driven business cycles in historical perspective: The cases of the USA (1889-2015) and UK (1882-2010)

Engelbert Stockhammer, Giorgos Gouzoulis () and Robert Calvert Jump
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Giorgos Gouzoulis: University College London

No PKWP1907, Working Papers from Post Keynesian Economics Society (PKES)

Abstract: Minsky (1975) proposed a theory of endogenous cycles that results from the interaction of real and financial variables. Minsky’s work has inspired a growing body of literature on theoretical business cycle models, but relatively little work has been done in the empirical field. In particular, while interest in financial cycles has risen significantly after the 2007-8 financial crash, and recent empirical studies have explored the impact of debt on aggregate demand or its effect on the probability of financial crises, the literature does not test for endogenous cycle mechanisms. In contrast, the present paper investigates econometrically whether or not business cycles are driven by corporate debt and/or by mortgage debt. We estimate simple vector autoregressive moving average (VARMA) models, using historical macroeconomic data for the USA (1889-2015) and the UK (1882-2010). We find robust evidence of endogenous corporate debt-driven cycles for the USA, weak evidence of mortgage debt-driven cycles in the USA and no evidence of corporate or mortgage debt-driven cycles for the UK.

Keywords: Minsky cycles; corporate debt; mortgage debt; business cycles; historical data (search for similar items in EconPapers)
JEL-codes: E22 G01 (search for similar items in EconPapers)
Pages: 23
Date: 2019-03
New Economics Papers: this item is included in nep-fdg, nep-his, nep-mac and nep-pke
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Citations: View citations in EconPapers (2)

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