Generalized financial cycle theory from the Minsky’s perspective: UK 1270–2016


Our study aims to bridge the gap between contemporary studies on financial cycles and the financial instability hypothesis in the form of a Minsky cycle (Minsky, 1963). Paper contribution range from explored causality links (financial cycles cause business cycles) to the empirical estimation of the Minsky moment. We use Braitung and Candelon (2006) Granger causality test and discrete threshold model (Hansen, 2005) to the link between financial and business cycles in the UK from 1270–2016. Financial and business cycles relation varies over time with contemporary financial cycles being longer to their historical versions. Financial cycles lead business cycles. Business cycles are an economy reaction to them and change in the Minsky moment. Minsky moment has a statistically significant impact on main growth determinants – population, export, technology. Policymakers should look for the Minsky moment when setting up a new economic policy to assure it will be an effective one.

Keyword : financial cycles, financial instability hypothesis, Minsky cycle, discrete threshold regression, spectral Granger causality, business cycles

How to Cite
Porada-Rochoń, M. ., & Škare, M. . (2020). Generalized financial cycle theory from the Minsky’s perspective: UK 1270–2016. Journal of Business Economics and Management, 21(5), 1375-1389.
Published in Issue
Aug 20, 2020
Abstract Views
PDF Downloads
Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.


Aikman, D., Haldane, A. G., & Nelson, B. D. (2015). Curbing the credit cycle. Economic Journal, 125(585), 1072–1109.

Borio, C. (2014). The financial cycle and macroeconomics: What have we learnt? Journal of Banking and Finance, 45(1), 182–198.

Borio, C., & Drehmann, M. (2011). Financial instability and macroeconomics: Bridging the Gulf. In The International Financial Crisis (pp. 237–268). World Scientific Publishing.

Borio, C., Drehmann, M., & Xia, D. (2018). The financial cycle and recession risk. BIS Quarterly Review (December), 59–71.

Borio, C., Disyatat, P., & Juselius, M. (2017). Rethinking potential output: Embedding information about the financial cycle. Oxford Economic Papers, 69(3), 655–677.

Braun, M., & Larrain, B. (2005). Finance and the business cycle: International, inter-industry evidence. Journal of Finance, 60(3), 1097–1128.

Breitung, J., & Candelon, B. (2006). Testing for short- and long-run causality: A frequency-domain approach. Journal of Econometrics, 132(2), 363–378.

Bustos-Contell, E., Climent-Serrano, S., & Labatut-Serer, G. (2019). Changes in determinants of the interest margin in today’s economy. Economic Research-Ekonomska Istraživanja, 1–20.

Claessens, S., Kose, M. A., & Terrones, M. E. (2012). How do business and financial cycles interact? Journal of International Economics, 87(1), 178–190.

Clark, G. (2010). The macroeconomic aggregates for England, 1209–2008. In A. J. Field (Ed.), Research in economic history (Vol. 27, pp. 51–140). Emerald Group Publishing Limited.

Drehmann, M., Borio, C., & Tsatsaronis, K. (2012). Characterising the financial cycle: Don’t lose sight of the medium term! (BIS Working Papers No. 380). Bank for International Settlements.

Drehmann, M., Borio, C., & Tsatsaronis, K. (2013). Can we identify the financial cycle? In The role of Central Banks in financial stability (pp. 131–156). World Scientific Publishing.

Geweke, J. F. (1984). Measures of conditional linear dependence and feedback between time series. Journal of the American Statistical Association, 79(388), 907–915.

Hansen, B. E. (2005). Inference in TAR Models. Studies in Nonlinear Dynamics and Econometrics.

Hiebert, P., Klaus, B., Peltonen, T. A., Schüler, Y. S., & Welz, P. (2014). Capturing the financial cycle in euro area countries. ECB Financial Stability Review, (November), 109–117.

Kjosevski, J., Petkovski, M., & Naumovska, E. (2019). Bank-specific and macroeconomic determinants of non-performing loans in the Republic of Macedonia: Comparative analysis of enterprise and household NPLs. Economic Research-Ekonomska Istraživanja, 32(1), 1185–1203.

Kubiszewska, K. (2019). Banking stability during the economic transformation process in selected countries of the Western Balkans. Economic Research-Ekonomska Istraživanja, 32(1), 2532–2553.

Minsky, H. (1991). Financial crises: Systemic or idiosyncratic. (Working Paper No. 51). SSRN.

Minsky, H. (2016). Can it happen again? Essays on instability and finance. Routledge.

Minsky, H. P. (1963). Can “it” happen, again? In D. Carson (Ed.), Banking and monetary studies (pp. 101–111). Homewood.

Minsky, H. P. (1972). An exposition of a Keynesian theory of investment. In G. P. Szego & S. Shell (Eds.), Mathematical methods in investments and finance. North-Holland. Minsky, H. P. (1975). John Maynard Keynes. Palgrave Macmillan.

Minsky, H. P. (1978). The financial instability hypothesis: A restatement. Thames Polytechnic.

Minsky, H. P. (1982). Debt deflation processes in today’s institutional environment. PSL Quarterly Review, 35(143), 375–393.

Minsky, H. P. (1986). Stabilizing an unstable economy. Yale University Press.

Oman, W. (2019). The synchronization of business cycles and financial cycles in the Euro Area. International Journal of Central Banking, 15(1), 327–362.

Palley, T. I. (2011). A theory of Minsky super-cycles and financial crises. Contributions to Political Economy, 30(1), 31–46.

Porada-Rochoń, M. (2019). Main Features of Financial and Business Cycles in the UK 1270–2016. In Finanse przedsiębiorstw i rachunkowość – ujęcie teoretyczne i aplikacyjne. Wydawnictwo SGGW Press.

Schüler, Y. S., Hiebert, P. P., & Peltonen, T. A. (2015). Characterising the financial cycle: A multivariate and time-varying approach (ECB Working Paper Series). European Central Bank.

Škare, M. (2010). Can there be a “golden triangle” of internal equilibrium? Journal of Policy Modeling, 32, 562–573.

Škare, M., & Porada-Rochoń, M. P. (2020). Multi-channel singular-spectrum analysis of financial cycles in ten developed economies for 1970–2018. Journal of Business Research, 112, 567–575.

Thomas, R., & Dimsdale, N. (2017). A Millennium of UK Data.

Tong, H. (1983). Lecture notes in statistics: Vol. 21. Threshold models in non-linear time series analysis. Springer-Verlag.

Tsay, R. S. (1989). Testing and modelling threshold autoregressive processes. Journal of the American Statistical Association, 84(405), 231–240.

Zhao, Y., Sun, B., Xiao, B., & Cheng, F. (2018). Selecting a better valuation model to measure bubble level of stocks price: Empirical study from internet-based finance stocks in A-share market. Economic Research-Ekonomska Istraživanja, 31(1), 1619–1640.