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1 – 2 of 2Edmond Berisha, David Gabauer, Rangan Gupta and Jacobus Nel
Existing empirical evidence suggests that episodes of financial stress (crises) can act as driver of growth of inequality. Consequently, in this study, the authors explore the…
Abstract
Purpose
Existing empirical evidence suggests that episodes of financial stress (crises) can act as driver of growth of inequality. Consequently, in this study, the authors explore the time-varying predictive power of an index of financial stress for growth in income (and consumption) inequality in the UK. The authors focus on the UK since income (and consumption) inequality data are available at a high frequency, i.e. on a quarterly basis for over 40 years (June, 1975 to March, 2016).
Design/methodology/approach
The authors use Wang and Rossi's approach to analyze the time-varying impact of financial stress on inequality. Hence, the method provides a more appropriate inference of the effect rather than a constant parameter Granger causality method. Besides, understandably, the time-varying approach helps to depict the time-variation in the strength of predictability of financial stress on inequality.
Findings
This study’s findings point that financial distress correspond to subsequent increases in inequality, with the index of financial stress containing important information in predicting growth in income inequality for both in and out-of-sample periods. Interestingly, the strength of the in-sample predictive power is high post the period of the global financial crisis, as was observed in the early part of the sample. The authors believe these findings highlight an important role of financial stress for inequality – an area of investigation that has in general remained untouched.
Originality/value
Accurate prediction of inequality at a higher frequency should be more relevant to policymakers in designing appropriate policies to circumvent the wide-ranging negative impacts of inequality, compared to when predictions are only available at the lower annual frequency.
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Edmond Berisha, Rangan Gupta and Orkideh Gharehgozli
The primary focus of this study is to examine the distributional consequences of the widespread increase in prices. The fundamental question the study aims to address is whether…
Abstract
Purpose
The primary focus of this study is to examine the distributional consequences of the widespread increase in prices. The fundamental question the study aims to address is whether the dynamics of income distribution due to higher inflation differ in the short term compared to the long run.
Design/methodology/approach
The authors estimated a panel-data model (fixed effects) using inequality and inflation data available at a high frequency, i.e. on a quarterly basis for over 30 years, and found evidence that inflation causes rapid swings in income distribution.
Findings
The authors’ contribution to the literature lies in providing evidence that inflation rapidly causes swings in income distribution, even after controlling for the state of the economy. The authors also demonstrate that the magnitude and direction of the effect of inflation on income inequality depend on whether the initial inflation rate is below or above the Federal Reserve’s target of 2%.
Originality/value
To the best of the authors’ knowledge, the authors are the first to emphasize that the targets set by central banks can drive the strength and direction of the relationship between inflation and income inequality.
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