Inequality, Leverage, and Crises

Michael Kumhof, Romain Ranciere and Pablo Winant

American Economic Review, 2015, vol. 105, issue 3, 1217-45

Abstract: The paper studies how high household leverage and crises can be caused by changes in the income distribution. Empirically, the periods 1920-1929 and 1983-2008 both exhibited a large increase in the income share of high-income households, a large increase in debt leverage of low- and middle-income households, and an eventual financial and real crisis. The paper presents a theoretical model where higher leverage and crises are the endogenous result of a growing income share of high-income households. The model matches the profiles of the income distribution, the debt-to-income ratio and crisis risk for the three decades preceding the Great Recession. (JEL D14, D31, D33, E32, E44, G01, N22)

JEL-codes: D14 D31 D33 E32 E44 G01 N22 (search for similar items in EconPapers)
Date: 2015
Note: DOI: 10.1257/aer.20110683
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Citations: View citations in EconPapers (220)

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Related works:
Working Paper: Inequality, Leverage, and Crises (2015)
Working Paper: Inequality, Leverage, and Crises (2015)
Working Paper: Inequality, Leverage and Crises (2011)
Working Paper: Inequality, Leverage and Crises (2011)
Working Paper: Inequality, Leverage and Crises (2010)
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