• Inequality, leverage, and crises: Theory and evidence revisited

    2 monthes ago - By The World Economy

    Abstract
    Rajan (2010) points to rising income inequality as a root cause of the recent financial crisis through high household leverage. The Rajan hypothesis has ignited debate over the relationship between inequality, leverage, and crises. Kumhof et al. (2013) prove the validity of this hypothesis with a theoretical formulation, but empirical studies provide mixed evidence using different samples and estimators. To clarify this controversy, we reexamine the issue by using the same data as in the literature, and provide additional evidence after taking into account the role of asset...
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