Inequality, Leverage and Crises [electronic resource] / Romain Ranciere.
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TextSeries: IMF Working Papers; Working Paper ; No. 10/268Publication details: Washington, D.C. : International Monetary Fund, 2010Description: 1 online resource (37 p.)ISBN: 1455210757 :ISSN: 1018-5941Subject(s): Aggregate Factor Income Distribution | Calibration | Consumption Inequality | Default Risk | Distributional Conflict | Global Solution Methods | United StatesAdditional physical formats: Print Version:: Inequality, Leverage and CrisesOnline resources: IMF e-Library | IMF Book Store Abstract: The paper studies how high 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 the rich, a large increase in leverage for the remainder, and an eventual financial and real crisis. The paper presents a theoretical model where these features arise endogenously as a result of a shift in bargaining powers over incomes. A financial crisis can reduce leverage if it is very large and not accompanied by a real contraction. But restoration of the lower income group's bargaining power is more effective.
The paper studies how high 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 the rich, a large increase in leverage for the remainder, and an eventual financial and real crisis. The paper presents a theoretical model where these features arise endogenously as a result of a shift in bargaining powers over incomes. A financial crisis can reduce leverage if it is very large and not accompanied by a real contraction. But restoration of the lower income group's bargaining power is more effective.
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