Inequality, Leverage and Crises

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.
Publication date: November 2010
ISBN: 9781455210756
$18.00
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Topics covered in this book

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consumption inequality , distributional conflict , leverage , default risk , global solution methods , probability , calibration , survey , Macroeconomics: Consumption , Saving , Production , Employment , and Investment: General (includes Measurement and Data) , Aggregate Factor I

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