Could macroeconomic factors such as income inequality be the real root cause of financial crises? We explore a broad variety of financial and macroeconomic variables and employ a general-to-specific model selection process to find the most reliable predictors of financial crises in developed countries over a period of more than 100 years. Our in-sample results indicate that income inequality has predictive power beyond loan growth and several other financial variables. Out-of-sample forecasts for individual predictors show that their predictive power tends to vary considerably over time, but income inequality has predictive power in each forecasting period.
Fields of Science
- 511 Economics
Kirschenmann, K., Malinen, M. T., & Nyberg, H. K. (2016). The risk of financial crises: Is there a role for income inequality? Journal of International Money and Finance, 68, 161-180. https://doi.org/10.1016/j.jimonfin.2016.07.010