Does the inequality-credit-crisis nexus exist? An empirical re-examination |
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Authors: | Xiao Chang Xinhua Gu Chunyu Lei |
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Institution: | 1. Division of Business and Management, United International College, Beijing Normal University-Hong Kong Baptist University , Zhuhai, China;2. Department of Finance and Business Economics, Faculty of Business Administration, University of Macau , Taipa, MO, China |
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Abstract: | ABSTRACT Rajan claims that rising inequality led to financial crises through credit booms in the U.S. Kumhof and Ranciere provide a theoretical formulation for this hypothesis. However, their assertions are not supported by cross-country evidence found in the work of Bordo and Meissner. A few subsequent empirical studies, albeit inspired by this pioneering work, find new evidence not in line with its conclusion but with the Rajan hypothesis. To clarify this controversial issue, we base our study on the B-M framework, resort to different estimators, and employ more model specifications by incorporating the role of deindustrialization. We find strong evidence for the inequality-credit-crisis nexus as modelled by Kumhof et al. |
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Keywords: | Deindustrialization income inequality credit boom financial crisis empirical evidence |
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