The risk of financial crises: Is there a role for income inequality?

Karolin Kirschenmann, Tuomas Malinen and Henri Nyberg

Journal of International Money and Finance, 2016, vol. 68, issue C, 161-180

Abstract: Could macroeconomic factors such as income inequality be the real root cause of financial crises? We explore a broad variety of financial and macroeconomic variables and employ a general-to-specific model selection process to find the most reliable predictors of financial crises in developed countries over a period of more than 100 years. Our in-sample results indicate that income inequality has predictive power beyond loan growth and several other financial variables. Out-of-sample forecasts for individual predictors show that their predictive power tends to vary considerably over time, but income inequality has predictive power in each forecasting period.

Keywords: Early warning indicators; Bank loans; Income inequality; Fixed effects logit (search for similar items in EconPapers)
JEL-codes: C33 C53 D31 G01 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (55)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:68:y:2016:i:c:p:161-180

DOI: 10.1016/j.jimonfin.2016.07.010

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