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 find a significant negative long-run relationship between inequality and real estate lending across U.S. states. In addition, we find evidence indicating that the path of causality runs from inequality to credit.
|Author:||Steven; Makram , Yamarik; El Shagi|
|No. of pages:||15|