Historical Patterns of Inequality and Productivity around Financial Crises
Pascal Paul ()
No 2017-23, Working Paper Series from Federal Reserve Bank of San Francisco
To understand the determinants of financial crises, previous research focused on developments closely related to financial markets. In contrast, this paper considers changes originating in the real economy as drivers of financial instability. Based on long-run historical data for advanced economies, I find that rising top income inequality and low productivity growth are robust predictors of crises – even outperforming well known early-warning indicators such as credit growth. Moreover, if crises are preceded by such developments, output declines more during the subsequent recession. In addition, I show that asset booms explain the relation between income inequality and financial crises in the data.
JEL-codes: E24 E44 E51 G01 G20 H12 N10 N20 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gro, nep-his and nep-mac
Note: First online version: September 2017.
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