Does the inequality-credit-crisis nexus exist? An empirical re-examination

Rajan claims that rising inequality led to financial crises through credit booms in the U.S. Kumhof and Ranciere provide a theoretical formulation for this hypothesis. However, their assertions are not supported by cross-country evidence found in the work of Bordo and Meissner. A few subsequent empi...

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Bibliographic Details
Published inApplied economics Vol. 52; no. 37; pp. 4044 - 4057
Main Authors Chang, Xiao, Li, Guoqiang, Gu, Xinhua, Lei, Chunyu
Format Journal Article
LanguageEnglish
Published London Routledge 08.08.2020
Taylor & Francis Ltd
Subjects
Credit
credit boom
Deindustrialization
Economic analysis
Economic crisis
Economic theory
empirical evidence
financial crisis
Hypotheses
income inequality
Inequality
United States > US
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Summary:Rajan claims that rising inequality led to financial crises through credit booms in the U.S. Kumhof and Ranciere provide a theoretical formulation for this hypothesis. However, their assertions are not supported by cross-country evidence found in the work of Bordo and Meissner. A few subsequent empirical studies, albeit inspired by this pioneering work, find new evidence not in line with its conclusion but with the Rajan hypothesis. To clarify this controversial issue, we base our study on the B-M framework, resort to different estimators, and employ more model specifications by incorporating the role of deindustrialization. We find strong evidence for the inequality-credit-crisis nexus as modelled by Kumhof et al.
ISSN:0003-6846
1466-4283
DOI:10.1080/00036846.2020.1730757