Abstract
The framework of the financial instability hypothesis consists of a holistic approach to the changes within the capitalist economy of the United States and the evolution of the financial structure of the economy. Hyman Minsky always emphasized the importance of finance in the capitalist system and described finance as a constantly evolving mechanism that creates inherent stability for the economy. Minsky also proposed policy solutions to mitigate the instability caused by financial innovation and evolution. He considered the institutions within the capitalist system as the most fundamental elements regarding providing stability to the innately unstable system. However, the scope of the empirical literature on the financial instability hypothesis was narrow for a very long time and has recently been growing, specifically after the Global Financial Crisis. There are several fundamental questions: What were the shares of Ponzi, speculative, and hedge firms in an industry in the US economy between 1999 and 2022? What are the determinants of a firm in an industry becoming Ponzi? If they are already, then what is the probability of default? This article attempts to address these research questions via an empirical analysis of the major industries in the United States from the perspective of financial instability hypothesis between 1999 and 2022. The main argument of the article is that the financial fragility of the US economy has been consistently high since the early 2000s leading up to the COVID-19 pandemic and beyond. However, this article finds some conflicting and some consistent results concerning the financial instability hypothesis.
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