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Inequality, Leverage, and Crises
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DOI：10.1257/aer.20110683.png)
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Abstract
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The 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.
Keywords:
INCOME INEQUALITY
MONETARY-POLICY
UNITED-STATES
DEFAULT
CREDIT
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