Economics at your fingertips  

Inequality, Leverage and Crises; The Case of Endogenous Default

Michael Kumhof (), Romain Ranciere and Pablo Winant

No 13/249, IMF Working Papers from International Monetary Fund

Abstract: The paper studies how high household leverage and crises can arise as a result of 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 the remainder, and an eventual financial and real crisis. The paper presents a theoretical model where higher leverage and crises arise endogenously in response to 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 prior to the Great Recession.

Keywords: Debt; Credit demand; Financial crises; Financial crisis; Income distribution; Income inequality; Private sector; wealth inequality, debt leverage, wealth in utility, global solution methods, recession, crisis probability, Aggregate Factor Income Distribution, Financial Markets and the Macroeconomy, wealth inutility, global solution methods., (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-opm and nep-upt
Date: 2013-12-17
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (16) Track citations by RSS feed

Downloads: (external link) (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Jim Beardow ().

Page updated 2018-07-20
Handle: RePEc:imf:imfwpa:13/249