Does income inequality contribute to credit cycles?

Malinen, Tuomas (2014): Does income inequality contribute to credit cycles?

Abstract

Recent literature has presented arguments linking income inequality on the financial crash of 2007 - 2009. One proposed channel is expected to work through bank credit. We analyze the relationship between income inequality and bank credit in panel cointegration framework, and find that they have a long-run dependency relationship. Results show that income inequality has contributed to the increase of bank credit in developed economies after the Second World War.

• Item Type: MPRA Paper
• Language: English
• Keywords: top 1% income share, bank loans, cointegration
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models; D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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