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Does inequality lead to credit growth? Testing the Rajan hypothesis using state-level data

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  • Yamarik, Steven
  • El-Shagi, Makram
  • Yamashiro, Guy

Abstract

This paper uses state-level data to test the Rajan hypothesis, from his book Fault Lines, that an increase in inequality can lead to a credit boom. Using dynamic heterogeneous panel estimation methods (i.e. MG, PMG, DFE), we find a significant positive long-run relationship between inequality and real estate lending across U.S. states.

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  • Yamarik, Steven & El-Shagi, Makram & Yamashiro, Guy, 2016. "Does inequality lead to credit growth? Testing the Rajan hypothesis using state-level data," Economics Letters, Elsevier, vol. 148(C), pages 63-67.
    • Handle: RePEc:eee:ecolet:v:148:y:2016:i:c:p:63-67
    DOI: 10.1016/j.econlet.2016.09.004
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    Cited by:

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    2. Mehmet Akif Destek & Bilge Koksel, 2019. "Income inequality and financial crises: evidence from the bootstrap rolling window," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-23, December.
    3. Balcilar, Mehmet & Berisha, Edmond & Gupta, Rangan & Pierdzioch, Christian, 2021. "Time-varying evidence of predictability of financial stress in the United States over a century: The role of inequality," Structural Change and Economic Dynamics, Elsevier, vol. 57(C), pages 87-92.
    4. Roman Matkovskyy, 2020. "A measurement of affluence and poverty interdependence across countries: Evidence from the application of tail copula," Bulletin of Economic Research, Wiley Blackwell, vol. 72(4), pages 404-416, October.
    5. El-Shagi, Makram & Fidrmuc, Jarko & Yamarik, Steven, 2020. "Inequality and credit growth in Russian regions," Economic Modelling, Elsevier, vol. 91(C), pages 550-558.
    6. Meszaros, John, 2018. "Inequality and unionization within the United States," The Quarterly Review of Economics and Finance, Elsevier, vol. 67(C), pages 326-333.
    7. Rym Ayadi & Sami B. Naceur & Sandra Challita, 2023. "Does income inequality really matter for credit booms?," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 52(1), February.
    8. Suzuki, Shiba, 2018. "Inequality and asset fire sales," MPRA Paper 90906, University Library of Munich, Germany.
    9. van Netten, Jamie, 2023. "The relationship between inequality and bank credit in Australia," Warwick-Monash Economics Student Papers 54, Warwick Monash Economics Student Papers.
    10. Bodea, Cristina & Houle, Christian & Kim, Hyunwoo, 2021. "Do financial crises increase income inequality?," World Development, Elsevier, vol. 147(C).
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    More about this item

    Keywords

    Rajan; Inequality; Loans; Credit; PMG;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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