Inequality, Leverage and Crises: The Case of Endogenous Default

WPIEA2013249 Image
Price:  $18.00

Author/Editor: Michael Kumhof, Romain Ranciere, Pablo Winant
Release Date: © December, 2013
ISBN : 978-1-48431-076-2
Stock #: WPIEA2013249
Stock Status: On back-order

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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 debtleverage 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 theincome distribution, the debt-to-income ratio and crisis risk for the three decades prior to the Great Recession.

More publications in this series: Working Papers

More publications by: Michael Kumhof ; Romain Ranciere ; Pablo Winant