Working Paper

Historical Patterns of Inequality and Productivity around Financial Crises


Abstract: To understand the determinants of financial crises, previous research focused on developments closely related to financial markets. In contrast, this paper considers changes originating in the real economy as drivers of financial instability. Based on long-run historical data for advanced economies, I find that rising top income inequality and low productivity growth are robust predictors of crises ? even outperforming well known early-warning indicators such as credit growth. Moreover, if crises are preceded by such developments, output declines more during the subsequent recession. In addition, I show that asset booms explain the relation between income inequality and financial crises in the data.

JEL Classification: N10; G01; H12; N20; E24; E51; G20; E44;

https://doi.org/10.24148/wp2017-23

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Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: Working Paper Series

Publication Date: 2017-09-25

Number: 2017-23

Pages: 50 pages

Note: First online version: September 2017.