An investigation of the effects of income inequality on financial fragility: Evidence from Organization for Economic Co‐operation and Development countries

Amountzias, Chrysovalantis

doi:10.1002/ijfe.1660

Cited by 8 publications

(3 citation statements)

References 91 publications

(239 reference statements)

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“…The study by Fasianos et al (2017) contradicted the findings reported by Perugini et al (2016) and Bazillier and Hericourt (2017), as they supported the Rajan hypothesis. Amountzias (2018) studied the inequality crises covering the period 1995-2015 in a panel of 33 OECD countries, following the Minsky hypothesis using a panel VAR framework analysis. Their findings supported a positive relationship between income inequality and financial fragility.…”

Section: Review Of Empirical Literaturementioning

confidence: 99%

Investigating the asymmetric effect of income inequality on financial fragility in South Africa and selected emerging markets: a Bayesian approach with hierarchical priors

Zungu,

Greyling

2023

IJOEM

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PurposeThis study aims to test the validity of the Rajan theory in South Africa and other selected emerging markets (Chile, Peru and Brazil) during the period 1975–2019.Design/methodology/approachIn this study, the researchers used time-series data to estimate a Bayesian Vector Autoregression (BVAR) model with hierarchical priors. The BVAR technique has the advantage of being able to accommodate a wide cross-section of variables without running out of degrees of freedom. It is also able to deal with dense parameterization by imposing structure on model coefficients via prior information and optimal choice of the degree of formativeness.FindingsThe results for all countries except Peru confirmed the Rajan hypotheses, indicating that inequality contributes to high indebtedness, resulting in financial fragility. However, for Peru, this study finds it contradicts the theory. This study controlled for monetary policy shock and found the results differing country-specific.Originality/valueThe findings suggest that an escalating level of inequality leads to financial fragility, which implies that policymakers ought to be cautious of excessive inequality when endeavouring to contain the risk of financial fragility, by implementing sound structural reform policies that aim to attract investments consistent with job creation, development and growth in these countries. Policymakers should also be cautious when implementing policy tools (redistributive policies, a sound monetary policy), as they seem to increase the risk of excessive credit growth and financial fragility, and they need to treat income inequality as an important factor relevant to macroeconomic aggregates and financial fragility.

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Section: Review Of Empirical Literaturementioning

confidence: 99%

Investigating the asymmetric effect of income inequality on financial fragility in South Africa and selected emerging markets: a Bayesian approach with hierarchical priors

Zungu,

Greyling

2023

IJOEM

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“…Some authors find significant evidence in favor of a positive relationship between financial fragility and income inequality in developed countries during the period 1995-2015 [55]. Financial fragility is the opposite to financial resilience, a term that has entered the debate among academics and policymakers in OECD and EU countries [24,56].…”

Section: Financial System's Resilience and Income Inequalitymentioning

confidence: 99%

“…In this paper, we assume that financial resilience can contribute to reducing financial fragility and thus reduce income inequality levels [55].…”

Section: Financial System's Resilience and Income Inequalitymentioning

confidence: 99%

Rethinking the Income Inequality and Financial Development Nexus. A Study of Nine OECD Countries

2020

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Sustainable finance seeks to increase the contribution of finance to sustainable and inclusive growth. The global financial crisis of 2008 provoked the return of inequality in advanced countries to levels typical of a century ago. The aim of this paper is to empirically analyze the relationship between finance and income inequality for a group of nine OECD countries over the pre-crisis and post-crisis periods (2000–2015). The model proposed in this study simultaneously considers two explanatory variables for measuring financial depth (credit provision and capital markets) and a new multidimensional variable to measure the financial system’s resilience (a composite indicator), and conducts panel data analysis. The empirical results confirm that in terms of financial depth, the "too much finance hypothesis" holds. We also find that financial system’s resilience helps alleviate existing income inequality and that income inequality appears higher in liberal market economies than in coordinated economies. These results encourage policymakers to look beyond traditional public redistribution interventions and to pay attention to other financial variables related to the financialization process, the behavior of financial intermediaries, and the specific environment in which they operate.

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Income disparities and financial development: evidence from a panel firm-level analysis

Amountzias

2023

Empir Econ

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An investigation of the effects of income inequality on financial fragility: Evidence from Organization for Economic Co‐operation and Development countries

Cited by 8 publications

References 91 publications

Investigating the asymmetric effect of income inequality on financial fragility in South Africa and selected emerging markets: a Bayesian approach with hierarchical priors

Investigating the asymmetric effect of income inequality on financial fragility in South Africa and selected emerging markets: a Bayesian approach with hierarchical priors

Rethinking the Income Inequality and Financial Development Nexus. A Study of Nine OECD Countries

Income disparities and financial development: evidence from a panel firm-level analysis

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