Inequality, Leverage and Crises

 
Author/Editor: Kumhof, Michael ; Ranciere, Romain
 
Publication Date: November 01, 2010
 
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Summary: The paper studies how high leverage and crises can arise as a result of changes in the income distribution. Empirically, the periods 1920-1929 and 1983-2008 both exhibited a large increase in the income share of the rich, a large increase in leverage for the remainder, and an eventual financial and real crisis. The paper presents a theoretical model where these features arise endogenously as a result of a shift in bargaining powers over incomes. A financial crisis can reduce leverage if it is very large and not accompanied by a real contraction. But restoration of the lower income group's bargaining power is more effective.
 
Series: Working Paper No. 10/268
Subject(s): Borrowing | Consumption | Debt | Economic models | Financial crisis | Financial risk | Financial sector | Household credit | Income distribution | Private sector | United States

Author's Keyword(s): Income inequality | consumption inequality | income distribution | distributional conflict | leverage | financial crises | default risk | global solution methods.
 
English
Publication Date: November 01, 2010
Format: Paper
Stock No: WPIEA2010268 Pages: 37
Price:
US$18.00 (Academic Rate:
US$18.00 )
 
 
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