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Historical Patterns of Inequality and Productivity around Financial Crises

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  • Pascal Paul

    (Federal Reserve Bank of San Francisco)

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 wellknown 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.

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  • Pascal Paul, 2018. "Historical Patterns of Inequality and Productivity around Financial Crises," 2018 Meeting Papers 583, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:583
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    2. Paul, Pascal, 2020. "A macroeconomic model with occasional financial crises," Journal of Economic Dynamics and Control, Elsevier, vol. 112(C).
    3. Nuri Hacıevliyagil & Krzysztof Drachal & Ibrahim Halil Eksi, 2022. "Predicting House Prices Using DMA Method: Evidence from Turkey," Economies, MDPI, vol. 10(3), pages 1-27, March.
    4. Pascal Paul, 2020. "The Time-Varying Effect of Monetary Policy on Asset Prices," The Review of Economics and Statistics, MIT Press, vol. 102(4), pages 690-704, October.

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