Historical Patterns of Inequality and Productivity around Financial Crises
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Pascal Paul: Federal Reserve Bank of San Francisco
No 583, 2018 Meeting Papers from Society for Economic Dynamics
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 wellknown 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.
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed018:583
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