Inequality, Leverage and Crises [electronic resource] : The Case of Endogenous Default / Michael Kumhof.
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TextSeries: IMF Working Papers; Working Paper ; No. 13/249Publication details: Washington, D.C. : International Monetary Fund, 2013Description: 1 online resource (48 p.)ISBN: 1484310764 :ISSN: 1018-5941Subject(s): Aggregate Factor Income Distribution | Crisis Probability | Debt Leverage | Financial Markets and the Macroeconomy | Global Solution Methods | Recession | United StatesAdditional physical formats: Print Version:: Inequality, Leverage and Crises : The Case of Endogenous DefaultOnline resources: IMF e-Library | IMF Book Store Abstract: 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 debt leverage 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 the income distribution, the debt-to-income ratio and crisis risk for the three decades prior to the Great Recession.
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 debt leverage 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 the income distribution, the debt-to-income ratio and crisis risk for the three decades prior to the Great Recession.
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