Does Inequality Lead to Credit Growth? Testing the Rajan Hypothesis Using State-Level Data
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 nd a signicant negative long-run relationship between inequality and real estate lending across U.S. states. In addition, we nd evidence indicating that the path of causality runs from inequality to credit.
|Author:||Steven Yamarik, Makram El Shagiy and Guy Yamashiro|
|No. of pages:||15|
|Category:||INFER working papers|