Inequality, Leverage and Crises

Romain Ranciere and Michael Kumhof

No 2010/268, IMF Working Papers from International Monetary Fund

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 1983-2008 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: WP; capital stock; physical capital (search for similar items in EconPapers)
Pages: 37
Date: 2010-11-01
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Citations: View citations in EconPapers (136)

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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 (2011)
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