EMNES Working Paper No 46
The central question of this paper is whether income inequality causes credit booms along with other factors. We distinguish between different types of credit boom: real estate, household, and firms’ credit booms, as well as credit booms that turn into crises.
Using a sample of 70 countries between 1990 and 2016, we find that income inequality does not cause credit booms in our global sample. When splitting the data by income level, we find that income inequality is a determinant of credit booms turning into crisis in high income countries.
Capital inflows increase the likelihood of credit boom occurrence and countries experiencing high economic growth tend to have more credit booms. Finally, in countries with fixed exchange rate regimes, credit booms are more frequent.