Time-Varying Predictability of Financial Stress on Inequality in United Kingdom

Edmond Berisha (), David Gabauer, Rangan Gupta and Jacobus Nel ()
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Edmond Berisha: Feliciano School of Business, Montclair State University, Montclair, NJ 07043, USA
Jacobus Nel: Department of Economics, University of Pretoria, Pretoria, 0002, South Africa

No 202030, Working Papers from University of Pretoria, Department of Economics

Abstract: In this paper, we analyze time-varying predictability of financial stress for growth in income (and consumption) inequality of the United Kingdom (UK) based on a high-frequency (quarterly) data set over 1975:2 to 2016:1. Results indicate that a well-established index of financial stress, derived from the European Central Bank, has a strong predictive power on growth rate of income (and to some extent consumption) inequality in the UK. Interestingly, the strength of the predictive power is found to be higher towards the beginning and end of the sample period corresponding to highly stressed financial markets in the UK. In addition, based on time-varying impulse response functions, we find that higher financial stress corresponds with subsequent increases in income inequality. Finally, the FSI is found to produce forecasting gains for the growth of income inequality over an out-of-sample period, especially at medium to long-runs.

Keywords: Financial Stress; Inequality; Time-Varying Predictions (search for similar items in EconPapers)
JEL-codes: C32 C53 D31 G01 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2020-04
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Journal Article: Time-varying predictability of financial stress on inequality in United Kingdom (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:202030

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