Inequality, Leverage, and Crises | Zendy

Michael Kumhof | Zendy; Romain Rancière | Zendy; Pablo Winant | Zendy

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Inequality, Leverage, and Crises

Author(s) -

Michael Kumhof,

Romain Rancière,

Pablo Winant

Publication year - 2015

Publication title -

american economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 16.936

H-Index - 297

eISSN - 1944-7981

pISSN - 0002-8282

DOI - 10.1257/aer.20110683

Subject(s) - leverage (statistics) , economics , recession , economic inequality , debt , income distribution , inequality , financial crisis , household debt , labour economics , monetary economics , demographic economics , macroeconomics , mathematical analysis , mathematics , machine learning , computer science

International audienceThe paper studies how high household leverage and crises can be caused by 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 debt leverage of low- and middle-income households, and an eventual financial and real crisis. The paper presents a theoretical model where higher leverage and crises are the endogenous result of a growing income share of high-income households. The model matches the profiles of the income distribution, the debt-to-income ratio and crisis risk for the three decades preceding the Great Recession

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