Inequality, Leverage and Crises

Rancière, Romain and Michael Kumhof
Authors registered in the RePEc Author Service: Romain Rancière

No 8179, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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 1983-2007 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.

Keywords: Income inequality; wealth inequality; leverage; financial crises; wealth (search for similar items in EconPapers)
JEL-codes: E21 E25 E44 G01 J31 (search for similar items in EconPapers)
Date: 2011-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

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Related works:
Journal Article: Inequality, Leverage, and Crises (2015)
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 (2010)
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