Does Inequality Lead to Credit Growth? Testing the Rajan Hypothesis Using State-Level Data

Steven Yamarik () and Makram El Shagi ()
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Makram El Shagi: Henan UniversityAuthor-Name: Guy Yamashiro
Authors registered in the RePEc Author Service: Makram El-Shagi

No 2016.01, Working Papers from International Network for Economic Research - INFER

Abstract: This paper uses state-level data to test the Rajan hypothesis, from his book Fault Lines, that an increase in inequality can lead to a credit boom. Using dynamic heterogeneous panel estimation methods (i.e. MG, PMG, DFE), we find a significant negative long-run relationship between inequality and real estate lending across U.S. states. In addition, we find evidence indicating that the path of causality runs from inequality to credit.

Keywords: Rajan; inequality; loans; credit; PMG (search for similar items in EconPapers)
Pages: 15 pages
Date: 2016
New Economics Papers: this item is included in nep-mac and nep-ure
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Citations: View citations in EconPapers (17)

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Journal Article: Does inequality lead to credit growth? Testing the Rajan hypothesis using state-level data (2016)
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