Firms’ leverage ratio and the Financial Instability Hypothesis: an empirical investigation for the US economy (1970–2014)

2019 ◽  
Vol 43 (6) ◽  
pp. 1499-1523 ◽  
Author(s):  
Ítalo Pedrosa
Keyword(s):  
Empirical Investigation ◽  
Financial Fragility ◽  
Financial Instability ◽  
Positive Relation ◽  
Firm Level ◽  
Leverage Ratio ◽  
Us Economy ◽  
General Outcome ◽  
The Us

Abstract ‘There are many ‘Minskian’ interpretations of how financial fragility builds up reflecting the unsolved tensions regarding the transition from micro to macro results in Minsky’s Financial Instability Hypothesis (FIH).’ Using firm-level and macroeconomic data to comply with the variety of FIH’s interpretations, we empirically assess the relations between leverage and financial fragility in the US economy (1970–2014). To evaluate firms’ financial fragility, we deploy Minsky’s scale—from the financially sounder to the more fragile firms: hedge, speculative and Ponzi. The main findings are the following: (i) the evolution of the aggregate leverage ratio does not account for the systemic financial fragility, measured by the frequency of speculative and Ponzi firms, and (ii) within the biggest firms, the leverage has increased along with the incidence of hedge financing, and for the smallest firms group the opposite has happened. We conclude that a positive relation between leverage and financial fragility cannot be deemed to be a general outcome.

scholarly journals Varieties of capitalism, increasing income inequality and the sustainability of long-run growth

2020 ◽  
Vol 44 (3) ◽  
pp. 559-582
Author(s):  
Mark Setterfield ◽  
Yun K Kim
Keyword(s):  
Varieties Of Capitalism ◽  
Financial Fragility ◽  
Debt Accumulation ◽  
Us Economy ◽  
Long Run ◽  
The Social ◽  
The Us ◽  
Debt Dynamics ◽  
Social Wage ◽  
Household Borrowing

Abstract We model US household debt accumulation during the neoliberal boom (1990–2007) as a response to emulation effects and the decline of the social wage, which has ‘privatised’ an increasing share of the costs of providing for services such as health and education. The debt dynamics of the US economy are then studied under alternative assumptions about the configuration of distributional variables, which is shown to differ across varieties of capitalism that have ‘neoliberalised’ to different degrees. A key result is that distributional change alone will not make contemporary US capitalism financially sustainable due, in part, to the paradoxical nature of inequality as a spur to household borrowing, and hence a source of both demand-formation and financial fragility. Achieving sustainability requires, instead, more wide-ranging reform.

Optimal Trend Inflation

2019 ◽  
Vol 109 (2) ◽  
pp. 702-737 ◽  
Author(s):  
Klaus Adam ◽  
Henning Weber
Keyword(s):  
Inflation Rate ◽  
Heterogeneous Firms ◽  
Census Bureau ◽  
Firm Level ◽  
Us Economy ◽  
Trend Inflation ◽  
The Us ◽  
Heterogeneous Firm ◽  
Heterogeneous Firm Model ◽  
Firm Model

Sticky price models featuring heterogeneous firms and systematic firm-level productivity trends deliver radically different predictions for the optimal inflation rate than their popular homogenous-firm counterparts: (i) the optimal steady-state inflation rate generically differs from zero and (ii) inflation optimally responds to productivity disturbances. We show this by aggregating a heterogeneous-firm model with sticky prices in closed form. Using firm-level data from the US Census Bureau, we estimate the historically optimal inflation path for the US economy: the optimal inflation rate ranges between 1 percent and 3 percent per year and displays a downward trend over the period 1977–2015. (JEL C51, D24, D25, E31, E52)

scholarly journals Heterogeneous firm-level responses to the US 2018 tariff announcement

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Yafeng Qin ◽  
Zikai Yang ◽  
Min Bai
Keyword(s):  
Hong Kong ◽  
Stock Market ◽  
Mainland China ◽  
Chinese Stock Market ◽  
Firm Level ◽  
Content Type ◽  
Us Economy ◽  
The Us ◽  
The Usa ◽  
The Impact

PurposeThis study examines the impact of the $60 billion tariff announcement of the US government on the Chinese exporting firms. In particular, it focuses on the firms whose revenues are highly dependent on the US economy.Design/methodology/approachThis study uses an experimental analysis and the event study methodology. The sample includes firms listed in mainland China and Hong Kong Stock Exchanges that have the highest revenues from exporting to the USA. The data are obtained from China Stock Market and Accounting Research (CSMAR) and DataStream.FindingsThe authors find that the tariff announcement has significantly negative impacts on stock performance both before and after the announcement, and the impacts are heterogeneous across all sample firms. For A shares listed in Mainland China, firms with more revenues from the US experience greater price drops on the announcement day, regardless of being in the targeted industry or not. But such finding is absent from H shares listed in Hong Kong. The authors also find that for all the firms, greater pricing power can alleviate the impacts of the tariff announcement.Research limitations/implicationsThe results provide implications to investors, policymakers and regulators on the further US-China cooperation in the future.Originality/valueThis is the first study documenting the heterogeneity of the impact of the tariff announcement and thus contributes to the prosperous studies on the varied firm-level responses in the Chinese stock market, and to the burgeoning literature by filling the gap of the financial market responses to the protectionist policy announcement.

scholarly journals Financial Fragility during the COVID-19 Pandemic

2021 ◽  
Vol 111 ◽  
pp. 292-296
Author(s):  
Robert L. Clark ◽  
Annamaria Lusardi ◽  
Olivia S. Mitchell
Keyword(s):  
Low Income ◽  
Financial Fragility ◽  
Us Economy ◽  
Financial Difficulties ◽  
The Us ◽  
Additional Protection ◽  
Emergency Interventions

Early in the COVID-19 pandemic, much of the US economy was closed to limit the virus's spread, and several emergency interventions were implemented. Our analysis of older (45-75) respondents fielded in April-May of 2020 indicates that about 1 in 5 respondents was financially fragile and would have difficulty facing a midsize emergency expense. Some subgroups were at particular risk of facing financial difficulties, especially younger respondents, those with larger families, Hispanics, and those with low income. Moreover, the more financially literate were better able to handle such shocks, indicating that knowledge can provide some additional protection during a pandemic.

Sign in / Sign up

Export Citation Format

Share Document