An empirical application of the financial instability hypothesis based on data from the Dutch non-financial private sector

Abstract This paper conducts an empirical analysis of the financial instability hypothesis on Dutch data. The main literature on this topic has been reviewed, and various financial fragility indexes to determine whether Dutch firms are in a hedge, speculative, or Ponzi regime are discussed. To do empirical analysis, 340 publicly-listed private Dutch firms from various industries were selected, and these panel data include observations from 2005 to 2019. This period includes three cases of falling GDP of the Netherlands: 2008–2009, 2011, and 2014. We use for our empirical analysis three financial fragility indexes. After identifying the regime of firms according to these criteria, we chose an index developed by Nishi to make a logistic regression. We use the Nishi approach to determine what affects a firm’s probabilities of becoming a Ponzi and thereby confirm Minsky’s hypothesis on Dutch data. According to our analysis, significant factors of the probability that Dutch private non-financial companies will be a Ponzi firm are profitability, interest rate, industry output, and crisis. Both accumulation of financial fragility due to “destabilizing stability” and austerity policy were reasons for economic crises in the Netherlands in the last decades.