[PPT] - Historical Patterns of Inequality and Productivity around Financial PowerPoint Presentation

SLIDE 1

Historical Patterns of Inequality and Productivity around Financial Crises

Pascal Paul

Federal Reserve Bank of San Francisco1

1The views expressed herein are solely mine and do not necessarily reflect the ones of

the Federal Reserve Bank of San Francisco or the Federal Reserve System.

SLIDE 2

Research Questions

Are financial crises more likely after particular macroeconomic developments?

a

Once a crisis occurs, what determines the severity of the following recession?

SLIDE 3

Research Questions

Are financial crises more likely after particular macroeconomic developments?

a

Once a crisis occurs, what determines the severity of the following recession?

SLIDE 4

U.S. around Great Recession

2000 2003 2006 2009

5

5 10 2000 2003 2006 2009 17 18 19 20 2000 2003 2006 2009 43 44 45 46 2000 2003 2006 2009

2
1

1 2 3 2000 2003 2006 2009

1

1 2 3 4 2000 2003 2006 2009 1 2 3 4

SLIDE 5

Data

Long-run historical perspective
17 advanced economies
Annual data, 1870−2013
Combining data sets

a

1. Jordà, Schularick, and Taylor (2017)

→ Macrofinancial Data

2. Bergeaud, Cette, and Lecat (2016)

→ Productivity Data

3. World Wealth & Income Database

→ Inequality Data

SLIDE 6

Data

Long-run historical perspective
17 advanced economies
Annual data, 1870−2013
Combining data sets

a

1. Jordà, Schularick, and Taylor (2017)

→ Macrofinancial Data

2. Bergeaud, Cette, and Lecat (2016)

→ Productivity Data

3. World Wealth & Income Database

→ Inequality Data

SLIDE 7

Main Results

Buildup Period

∆Top income shares and productivity growth are robust crises predictors
Predictive power of top income shares explained by asset price booms

a Recovery Period

Recessions preceded by rising inequality or low productivity growth

associated with deeper and slower recoveries

SLIDE 8

Main Results

Buildup Period

∆Top income shares and productivity growth are robust crises predictors
Predictive power of top income shares explained by asset price booms

a Recovery Period

Recessions preceded by rising inequality or low productivity growth

associated with deeper and slower recoveries

SLIDE 9

Literature & Channels

Inequality

Inequality and Financial Crises

(Morelli and Atkinson, 2015; Kirschenmann et al., 2016)

Credit channel

(Kumhof, Rancière, and Winant, 2015; Bordo and Meissner, 2012) a

Productivity

“Bad credit booms” associated with low productivity growth

(Gorton and Ordoñez, 2016)

SLIDE 10

Literature & Channels

Inequality

Inequality and Financial Crises

(Morelli and Atkinson, 2015; Kirschenmann et al., 2016)

Credit channel

(Kumhof, Rancière, and Winant, 2015; Bordo and Meissner, 2012) a

Productivity

“Bad credit booms” associated with low productivity growth

(Gorton and Ordoñez, 2016)

SLIDE 11

Macrohistory Database

Jordà, Schularick, and Taylor (2017)

Macrofinancial variables
Financial crises dates

Definition Dates

Recession dates

1870 1890 1910 1930 1950 1970 1990 2010 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8

SLIDE 12

World Wealth & Income Database

1880 1900 1920 1940 1960 1980 2000 20 40 60 1880 1900 1920 1940 1960 1980 2000 20 40 60 1880 1900 1920 1940 1960 1980 2000 20 40 60 1880 1900 1920 1940 1960 1980 2000 20 40 60 1880 1900 1920 1940 1960 1980 2000 20 40 60 1880 1900 1920 1940 1960 1980 2000 20 40 60 1880 1900 1920 1940 1960 1980 2000 20 40 60 1880 1900 1920 1940 1960 1980 2000 20 40 60 1880 1900 1920 1940 1960 1980 2000 20 40 60 1880 1900 1920 1940 1960 1980 2000 20 40 60 1880 1900 1920 1940 1960 1980 2000 20 40 60 1880 1900 1920 1940 1960 1980 2000 20 40 60 1880 1900 1920 1940 1960 1980 2000 20 40 60 1880 1900 1920 1940 1960 1980 2000 20 40 60 1880 1900 1920 1940 1960 1980 2000 20 40 60 1880 1900 1920 1940 1960 1980 2000 20 40 60

SLIDE 13

Long-term Productivity Database

Bergeaud, Cette, and Lecat (2016)

Yt = AtKα

t H1−α t

, LPt = Yt

Ht

Details Utilization-adjusted TFP

1900 1920 1940 1960 1980 2000

2
1

1 2 3 4 5 6

SLIDE 14

Part I: Predicting Financial Crises

SLIDE 15

Typical Patterns around Financial Crises

Good Booms, Bad Booms

SLIDE 16

Logit Regressions

log P[FCk,t = 1|·] P[FCk,t = 0|·]

=αk +β1∆hZk,t−1 +β2∆hXk,t−1 +uk,t

SLIDE 17

Predicting Financial Crises - Inequality

(1)*** (2)*** (3)*** (4)*** (5)*** ∆4log(Credit)t−1

0.772***
0.817***
0.677***
(0.333)***
(0.339)***
(0.333)***
[0.018]***
[0.013]***
[0.013]***

∆4Income Share 1%t−1

0.887***
0.954***
(0.258)***
(0.316)***
[0.019]***
[0.015]***

∆4Income Share 10%t−1

0.784***
0.738***
(0.251)***
(0.279)***
[0.018]***
[0.014]***

Number of crises

24***
24***
24***
24***
24***

Observations

670***
670***
670***
670***
670***

Countries

13***
13***
13***
13***
13***

Country FE

***
***
***
***
***

***p-value

0.623***
0.869***
0.878***
0.735***
0.855***

Pseudo R2

0.086***
0.109***
0.090***
0.159***
0.130***

AUROC

0.758***
0.772***
0.751***
0.825***
0.810***
(0.053)***
(0.053)***
(0.052)***
(0.049)***
(0.047)***

AUROC Figure

SLIDE 18

Predicting Financial Crises - Inequality

(1) (2) (3) ∆4Income Top 1%t−1

0.928***
(0.341)***
[0.016]***

∆4Income Top 1% Labort−1

0.253***
0.180***
(0.339)***
(0.456)***

[-0.004]*** [-0.002]*** ∆4Income Top 1% Capitalt−1

1.084***
1.044***
(0.286)***
(0.346)***
[0.015]***
[0.014]***

Credit, Stock Prices, House Prices

***

Number of crises

8***
8***
8***

Observations

302***
302***
302***

Countries

8***
8***
8***

Country FE p-value Pseudo R2

0.100***
0.174***
0.184***

AUROC

0.747***
0.813***
0.778***
(0.105)***
(0.071)***
(0.080)***

SLIDE 19

Predicting Financial Crises - Inequality

(1) (2)** (3)*** ∆4log(Total Capital Income)t−1

0.060
0.053**
0.078***
(0.235)
(0.072)**
(0.094)***
[0.001]

[-0.001]** [-0.001]*** ∆4Income Top 1%t−1

0.704**
(0.294)**
[0.015]**

∆4Income Top 1% Labort−1

0.008***
(0.317)***

[-0.000]*** ∆4Income Top 1% Capitalt−1

1.048***
(0.324)***
[0.013]***

Number of crises

9
9**
5***

Observations

404
322**
230***

Countries

7
7**
6***

Country FE p-value Pseudo R2

0.000
0.053**
0.152***

AUROC

0.511
0.698**
0.796***
(0.101)
(0.090)**
(0.087)***

SLIDE 20

Robustness - Inequality

Excluding country-fixed effects

Details

Ordinary Least Squares

Details

Pre- and Post-WWII samples

Details

Excluding Great Depression and Great Recession

Details

Financial vs. Nonfinancial Recessions

Details

Change in log of income share

Details

Demeaned moving average

Details

Alternative Crises Dates

Details

Interpolation over small gaps

Details

Wealth-to-income ratio

Details

SLIDE 21

Controls - Inequality

(1)*** (2)*** (3)*** ∆4Income Share 1%t−1

0.667***
0.732***
0.699***
(0.222)***
(0.223)***
(0.219)***
[0.011]***
[0.011]***
[0.008]***

Set of controls

***
***
***

GDP & Global GDP

***
***

Stock & House Prices

***

Number of crises

29***
29***
27***

Observations

781***
781***
738***

Countries

14***
14***
14***

Country FE

***
***
***

***p-value

0.748***
0.811***
0.366***

Pseudo R2

0.163***
0.176***
0.227***

AUROC

0.814***
0.824***
0.859***
(0.042)***
(0.039)***
(0.030)***

Individual Controls

SLIDE 22

Predicting Financial Crises - Productivity

(1)*** (2)*** (3)*** (4)*** (5)*** ∆4log(Credit)t−1

0.458***
0.537***
0.597***
(0.126)***
(0.142)***
(0.147)***
[0.013]***
[0.014]***
[0.015]***

∆4log(TFP)util.−adj.

t−1

0.269***
0.407***
(0.129)***
(0.132)***

[-0.008]*** [-0.011]*** ∆4log(LP)t−1

0.303***
0.512***
(0.115)***
(0.124)***

[-0.009]*** [-0.013]*** Number of crises

53***
53***
53***
53***
53***

Observations

1552***
1552***
1552***
1552***
1552***

Countries

17***
17***
17***
17***
17***

Country FE

***
***
***
***
***

***p-value

0.963***
0.983***
0.981***
0.946***
0.943***

Pseudo R2

0.044***
0.024***
0.025***
0.058***
0.066***

AUROC

0.695***
0.626***
0.636***
0.711***
0.724***
(0.035)***
(0.040)***
(0.038)***
(0.035)***
(0.032)***

AUROC Figure Horse Race

SLIDE 23

Robustness - Productivity

Excluding country-fixed effects

Details

Ordinary Least Squares

Details

Pre- and Post-WWII samples

Details Comparison

Excluding Great Depression and Great Recession

Details

Financial vs. Nonfinancial Recessions

Details

Input Factors Yt

At = Kα t H1−α t

Details

Alternative Crises Dates

Details

SLIDE 24

Controls - Productivity

(1)*** (2)*** (3)*** ∆4log(LP)t−1

0.553***
0.550***
0.810***
(0.134)***
(0.216)***
(0.361)***

[-0.012]*** [-0.010]*** [-0.009]*** Set of controls

***
***
***

Stock & House Prices

***
***

Income Share 1%

***

Number of crises

53***
41***
27***

Observations

1387***
1145***
738***

Countries

16***
16***
14***

Country FE

***
***
***

***p-value

0.849***
0.782***
0.169***

Pseudo R2

0.115***
0.141***
0.229***

AUROC

0.756***
0.778***
0.852***
(0.033)***
(0.036)***
(0.035)***

Individual Controls

SLIDE 25

Part II: Recessions

SLIDE 26

Local Projections

yk,t+h −yk,t = β h +γhξk,t +Γh

1Xk,t +Γh 2Xk,t−1 +uh k,t

for h = 1,...,5

SLIDE 27

Recessions

1 2 3 4 5

4
2

2 4 1 2 3 4 5

4
2

2 4 6

Estimation Results Financial vs. Nonfinancial

SLIDE 28

Conclusion

Top income shares and productivity growth are robust crises predictors
Predictive power of top income shares explained by asset price booms
Recessions preceded by rising inequality or low productivity growth

associated with deeper and slower recoveries

SLIDE 29

References

Bergeaud, A., G. Cette, and R. Lecat (2016). Productivity trends in advanced countries between 1890 and 2012. Review of Income and Wealth 62(3), 420–444. Bordo, M. D. and C. M. Meissner (2012). Does inequality lead to a financial crisis? Journal of International Money and Finance 31(8), 2147–2161. Gorton, G. and G. Ordoñez (2016). Good booms, bad booms. NBER Working Papers (22008). Imbs, J. M. (1999). Technology, growth and the business cycle. Journal of Monetary Economics 44(1), 65–80. Jordà, O., M. Schularick, and A. Taylor (2017). Macrofinancial history and the new business cycle facts. NBER Macroeconomics Annual 2016, Volume 31. Kirschenmann, K., T. Malinen, and H. Nyberg (2016). The risk of financial crises: Is there a role for income inequality? Journal

f International Money and Finance 68, 161 – 180.

Kumhof, M., R. Rancière, and P. Winant (2015). Inequality, leverage, and crises. American Economic Review 105(3), 1217–45. Morelli, S. and A. Atkinson (2015). Inequality and crises revisited. Economia Politica: Journal of Analytical and Institutional Economics 32(1), 31–51. Schularick, M. and A. M. Taylor (2012). Credit booms gone bust: Monetary policy, leverage cycles, and financial crises, 1870-2008. American Economic Review 102(2), 1029–1061.

SLIDE 30

Definition TFP & LP

Total Factor Productivity

Yt = At

TFPt

Kα

t L1−α t

where α = 1

3 , Lt = employment ×average hours, Kt = equipment +buildings from

corresponding investment data using perpetual inventory method with δE = 10% and δB = 2.5%.

Labor Productivity

LPt = Yt Lt

Back

SLIDE 31

Definition TFP & LP

Total Factor Productivity

Yt = At

TFPt

Kα

t L1−α t

where α = 1

3 , Lt = employment ×average hours, Kt = equipment +buildings from

corresponding investment data using perpetual inventory method with δE = 10% and δB = 2.5%.

Labor Productivity

LPt = Yt Lt

Back

SLIDE 32

Utilization-adjusted TFP

Yt = At (utKt)α (etHt)1−α

ut is capital utilization
et is labor effort.

Following Imbs (1999), obtain country-specific time series for ut and et as functions of

bservables.

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

4
3
2
1

1 2 3 4

Back

SLIDE 33

Definition Financial Crisis

Financial crises are identified as ... a ... “events during which a country’s banking sector experiences bank runs, sharp increases in default rates accompanied by large losses of capital that result in public intervention, bankruptcy, or forced merger of financial institutions”. (Schularick and Taylor, 2012) a

Back

SLIDE 34

Financial Crises Dates

AUS 1893 1989 BEL 1870 1885 1925 1931 1934 1939 2008 CAN 1907 CHE 1870 1910 1931 1991 2008 DEU 1873 1891 1901 1907 1931 2008 DNK 1877 1885 1908 1921 1931 1987 2008 ESP 1883 1890 1913 1920 1924 1931 1977 2008 FIN 1877 1900 1921 1931 1991 FRA 1882 1889 1930 2008 GBR 1890 1974 1991 2007 ITA 1873 1887 1893 1907 1921 1930 1935 1990 2008 JPN 1871 1890 1907 1920 1927 1997 NLD 1893 1907 1921 1939 2008 NOR 1899 1922 1931 1988 PRT 1890 1920 1923 1931 2008 SWE 1878 1907 1922 1931 1991 2008 USA 1873 1893 1907 1929 1984 2007 Back

SLIDE 35

Part I: Crisis Prediction - Inequality

SLIDE 36

AUROC − Inequality

0.25 0.5 0.75 1 0.25 0.5 0.75 1 Back

SLIDE 37

Robustness Checks − Inequality

Baseline:

Credit and income share 1% (logit)

***

Baseline

no CFE: Credit and income share 1% (logit)

***

Credit

and income share 1% (OLS)

***

Baseline

Pre- WWII

***

Baseline

Post- WWII

***

Baseline

excluding Great Recession and Great Depression

***

Baseline

predicting financial recessions

***

Baseline

predicting nonfinancial recessions

***

Credit

and log(income share 1%) (logit)

***

Demeaned

by 20-year average

*** ∆4log(Credit)t−1

0.512***
0.414***
0.017***
0.492***
0.686***
0.475***
0.540***
0.020***
0.489***
0.332***
(0.192)***
(0.128)***
(0.006)***
(0.271)***
(0.324)***
(0.279)***
(0.184)***
(0.110)***
(0.186)***
(0.236)***
[0.012]***
[0.010]***
[0.027]***
[0.010]***
[0.011]***
[0.013]***
[0.001]***
[0.011]***
[0.010]***

∆4Income Share 1%t−1

0.666***
0.608***
0.018***
0.505***
0.817***
0.380***
0.753***
0.109***
0.412***
(0.212)***
(0.164)***
(0.006)***
(0.312)***
(0.294)***
(0.204)***
(0.230)***
(0.130)***
(0.249)***
[0.015]***
[0.015]***
[0.028]***
[0.012]***
[0.008]***
[0.018]***

[-0.007]***

[0.012]***

∆4log(Income Share 1%)t−1

0.695***
(0.198)***
[0.016]***

Number of crises / recessions

29***
29***
29***
9***
20***
16***
31***
68***
29***
19***

Observations

814***
903***
903***
127***
657***
527***
814***
903***
814***
459***

Countries

14***
16***
16***
7***
14***
10***
14***
16***
14***
13***

Country FE

***
***
***
***
***
***
***
***
***

***p-value

0.940***
0.025***
0.997***
0.916***
0.895***
0.910***
0.527***
0.884***
0.584***

Pseudo R2

0.101***
0.070***
0.033***
0.062***
0.145***
0.072***
0.116***
0.031***
0.106***
0.095***

AUROC

0.779***
0.769***
0.799***
0.731***
0.812***
0.741***
0.806***
0.640***
0.785***
0.746***
(0.044)***
(0.037)***
(0.037)***
(0.085)***
(0.058)***
(0.062)***
(0.036)***
(0.034)***
(0.041)***
(0.061)***

Back

SLIDE 38

Alternative Crises Dates− Inequality - Reinhard & Rogoff

(1)*** (2)*** (3)*** (4)*** (5)*** ∆4log(Credit)t−1

0.425***
0.465***
0.378***
(0.257)***
(0.268)***
(0.245)***
[0.011]***
[0.009]***
[0.009]***

∆4Income Share 1%t−1

0.824***
0.862***
(0.236)***
(0.262)***
[0.018]***
[0.017]***

∆4Income Share 10%t−1

0.662***
0.650***
(0.226)***
(0.230)***
[0.016]***
[0.015]***

Number of crises

25***
25***
25***
25***
25***

Observations

701***
701***
701***
701***
701***

Countries

14***
14***
14***
14***
14***

Country FE

***
***
***
***
***

***p-value

0.595***
0.718***
0.761***
0.683***
0.746***

Pseudo R2

0.064***
0.111***
0.087***
0.129***
0.101***

AUROC

0.708***
0.772***
0.738***
0.784***
0.763***
(0.053)***
(0.048)***
(0.054)***
(0.049)***
(0.053)***

SLIDE 39

Alternative Crises Dates− Inequality - Laeven & Valencia

(1)*** (2)*** (3)*** (4)*** (5)*** ∆4log(Credit)t−1

0.913***
0.805***
0.808***
(0.377)***
(0.404)***
(0.403)***
[0.022]***
[0.016]***
[0.016]***

∆4Income Share 1%t−1

0.753***
0.643***
(0.306)***
(0.294)***
[0.019]***
[0.013]***

∆4Income Share 10%t−1

0.781***
0.673***
(0.329)***
(0.312)***
[0.019]***
[0.013]***

Number of crises

14***
14***
14***
14***
14***

Observations

399***
399***
399***
399***
399***

Countries

12***
12***
12***
12***
12***

Country FE

***
***
***
***
***

***p-value

0.750***
0.997***
0.996***
0.891***
0.910***

Pseudo R2

0.083***
0.081***
0.073***
0.125***
0.119***

AUROC

0.726***
0.739***
0.711***
0.777***
0.765***
(0.077)***
(0.079)***
(0.076)***
(0.078)***
(0.078)***

SLIDE 40

Alternative Crises Dates− Inequality - Bordo et al.

(1)*** (2)*** (3)*** (4)*** (5)*** ∆4log(Credit)t−1

0.406
0.438***
0.372*
(0.347)
(0.363)***
(0.339)*
[0.011]
[0.009]***
[0.009]*

∆4Income Share 1%t−1

0.629***
0.688***
(0.253)***
(0.273)***
[0.015]***
[0.015]***

∆4Income Share 10%t−1

0.293
0.267*
(0.232)
(0.235)*
[0.008]
[0.007]*

Number of crises

14
14***
14
14***
14*

Observations

471
471***
471
471***
471*

Countries

11
11***
11
11***
11*

Country FE

***
***
*

***p-value

0.997
0.999***
1.000
0.995***
0.998*

Pseudo R2

0.024
0.044***
0.018
0.060***
0.030*

AUROC

0.636
0.698***
0.602
0.699***
0.653*
(0.084)
(0.054)***
(0.067)
(0.071)***
(0.082)*

SLIDE 41

Alternative Crises Dates− Inequality - Romer & Romer -

Any Financial Distress (>=1)

(1)*** (2)*** (3)*** (4)*** (5)*** ∆4log(Credit)t−1

0.461***
0.398***
0.406***
(0.247)***
(0.254)***
(0.246)***
[0.017]***
[0.013]***
[0.013]***

∆4Income Share 1%t−1

0.559***
0.516***
(0.219)***
(0.209)***
[0.019]***
[0.017]***

∆4Income Share 10%t−1

0.602***
0.564***
(0.201)***
(0.193)***
[0.021]***
[0.018]***

Number of crises

25***
25***
25***
25***
25***

Observations

533***
533***
533***
533***
533***

Countries

15***
15***
15***
15***
15***

Country FE

***
***
***
***
***

***p-value

0.299***
0.906***
0.888***
0.589***
0.568***

Pseudo R2

0.062***
0.083***
0.082***
0.096***
0.096***

AUROC

0.694***
0.748***
0.734***
0.756***
0.748***
(0.051)***
(0.049)***
(0.049)***
(0.045)***
(0.048)***

SLIDE 42

Alternative Crises Dates− Inequality - Romer & Romer -

Severe Financial Distress (>=7)

(1)*** (2)*** (3)*** (4)*** (5)*** ∆4log(Credit)t−1

1.031***
0.945***
0.944***
(0.320)***
(0.327)***
(0.319)***
[0.021]***
[0.017]***
[0.017]***

∆4Income Share 1%t−1

0.650***
0.539***
(0.326)***
(0.300)***
[0.016]***
[0.010]***

∆4Income Share 10%t−1

0.683***
0.584***
(0.288)***
(0.270)***
[0.017]***
[0.010]***

Number of crises

12***
12***
12***
12***
12***

Observations

369***
369***
369***
369***
369***

Countries

9***
9***
9***
9***
9***

Country FE

***
***
***
***
***

***p-value

0.921***
0.999***
0.994***
0.932***
0.927***

Pseudo R2

0.089***
0.065***
0.060***
0.126***
0.124***

AUROC

0.740***
0.733***
0.709***
0.793***
0.783***
(0.067)***
(0.083)***
(0.068)***
(0.062)***
(0.064)***

Back

SLIDE 43

Interpolation − Inequality

(1)*** (2)*** (3)*** (4)*** (5)*** (6)*** ∆4log(Credit)t−1

0.833***
0.694***
0.813***
0.678***
0.896***
0.707***
(0.339)***
(0.335)***
(0.340)***
(0.334)***
(0.301)***
(0.299)***
[0.013]***
[0.013]***
[0.012]***
[0.013]***
[0.012]***
[0.013]***

∆4Income Share 1%t−1

0.929***
0.942***
0.957***
(0.307)***
(0.310)***
(0.321)***
[0.014]***
[0.014]***
[0.013]***

∆4Income Share 10%t−1

0.714***
0.730***
0.710***
(0.275)***
(0.268)***
(0.262)***
[0.014]***
[0.014]***
[0.013]***

Number of crises

25***
25***
25***
25***
26***
26***

Observations

706***
706***
758***
758***
793***
793***

Countries

13***
13***
13***
13***
13***
13***

Country FE

***
***
***
***
***
***

***p-value

0.733***
0.856***
0.929***
0.953***
0.827***
0.917***

Pseudo R2

0.154***
0.125***
0.144***
0.113***
0.165***
0.132***

AUROC

0.822***
0.806***
0.816***
0.789***
0.824***
0.799***
(0.048)***
(0.046)***
(0.048)***
(0.046)***
(0.047)***
(0.045)***

Back

SLIDE 44

Wealth-to-Income Ratio

∆4Wealth−income Ratiot−1

0.538***
0.345***
(0.235)***
(0.277)***
[0.018]***
[0.010]***

∆4log(House Prices)Real

t−1

0.379***
(0.208)***
[0.011]***

∆4log(Stock Prices)Real

t−1

0.464***
(0.189)***
[0.013]***

Number of crises

28***
28***

Observations

700***
700***

Countries

12***
12***

Country FE

***
***

***p-value

0.996***
0.976***

Pseudo R2

0.044***
0.080***

AUROC

0.661***
0.729***
(0.057)***
(0.052)***

Back

SLIDE 45

Controls − Inequality (1)

GDP *** Util.-adj. TFP

***

Labor Productivity*** Short-term Nominal Interest rate

***

Long-term Nominal Interest rate

***

Short-term Real Interest rate

***

Inflation ***

Gov. Debt-

to-GDP ***

∆4Income Share 1%t−1

0.680***
0.666***
0.670***
0.739***
0.739***
0.740***
0.649***
0.661***
(0.195)***
(0.197)***
(0.192)***
(0.206)***
(0.222)***
(0.206)***
(0.188)***
(0.179)***
[0.018]***
[0.018]***
[0.017]***
[0.018]***
[0.019]***
[0.018]***
[0.017]***
[0.017]***

Number of crises

29***
29***
29***
29***
29***
29***
29***
29***

Observations

814***
809***
814***
801***
814***
801***
814***
799***

Countries

14***
14***
14***
14***
14***
14***
14***
14***

Country FE

***
***
***
***
***
***
***
***

***p-value

0.978***
0.981***
0.988***
0.975***
0.966***
0.975***
0.971***
0.955***

Pseudo R2

0.070***
0.072***
0.079***
0.088***
0.076***
0.088***
0.070***
0.078***

AUROC

0.719***
0.713***
0.730***
0.723***
0.719***
0.723***
0.718***
0.732***
(0.046)***
(0.050)***
(0.046)***
(0.055)***
(0.054)***
(0.054)***
(0.047)***
(0.049)***

SLIDE 46

Controls − Inequality (2)

Credit-

to-GDP***

Nonmortgage

and Mortgage Credit

***

Firm

and Household Credit

***

Investment-

to-GDP ***

Current

Account- to-GDP

***

Real

House Prices

***

Real

Stock Prices

*** ∆4Income Share 1%t−1

0.650***
0.745***
0.781***
0.575***
0.742***
0.659***
0.513***
(0.237)***
(0.196)***
(0.278)***
(0.179)***
(0.190)***
(0.204)***
(0.202)***
[0.012]***
[0.014]***
[0.010]***
[0.014]***
[0.016]***
[0.015]***
[0.012]***

Number of crises

29***
28***
20***
29***
29***
28***
28***

Observations

811***
792***
589***
810***
810***
782***
801***

Countries

14***
14***
14***
14***
14***
14***
14***

Country FE

***
***
***
***
***
***
***

***p-value

0.640***
0.872***
0.460***
0.963***
0.903***
0.922***
0.914***

Pseudo R2

0.156***
0.136***
0.184***
0.088***
0.111***
0.098***
0.094***

AUROC

0.813***
0.813***
0.840***
0.755***
0.791***
0.756***
0.761***
(0.035)***
(0.036)***
(0.046)***
(0.046)***
(0.037)***
(0.051)***
(0.040)***

Back

SLIDE 47

Part I: Crisis Prediction - Productivity

SLIDE 48

AUROC − Productivity

0.25 0.5 0.75 1 0.25 0.5 0.75 1 Back

SLIDE 49

Robustness Checks − Productivity Post-WWII

(1)*** (2)*** (3)*** (4)*** (5)*** (6)*** ∆4log(Credit)t−1

0.425***
0.572***
0.700***
(0.218)***
(0.224)***
(0.205)***
[0.009]***
[0.010]***
[0.011]***

∆4log(TFP)util.−adj.

t−1

0.549***
0.699***
(0.181)***
(0.185)***

[-0.011]*** [-0.012]*** ∆4log(LP)t−1

0.724***
1.003***
(0.199)***
(0.252)***

[-0.013]*** [-0.015]*** Number of crises

24*
24***
24***
24***
24***
24***

Observations

974*
974***
974***
974***
974***
974***

Countries

16*
16***
16***
16***
16***
16***

Country FE

*
***
***
***
***
***

***p-value

0.998*
0.996***
1.000***
1.000***
0.998***
0.998***

Pseudo R2

0.017*
0.037***
0.040***
0.053***
0.075***
0.100***

AUROC

0.604*
0.668***
0.679***
0.704***
0.732***
0.766***
(0.055)*
(0.063)***
(0.045)***
(0.041)***
(0.050)***
(0.042)***

Back

SLIDE 50

Robustness Checks − Productivity

Baseline:

Credit and LP (logit)

***

Baseline

no CFE: Credit and LP (logit)

***

Credit

and LP (OLS)

***

Baseline

Pre- WWII

***

Baseline

Post- WWII

***

Baseline

excluding Great Recession and Great Depression

***

Baseline

predicting financial recessions

***

Baseline

predicting nonfinancial recessions

***

Credit

and input factors

***

Demeaned

by 20-year average

*** ∆4log(Credit)t−1

0.364***
0.339***
0.020***
0.334***
0.700***
0.259***
0.326***
0.082***
0.466***
0.601***
(0.105)***
(0.091)***
(0.005)***
(0.127)***
(0.205)***
(0.104)***
(0.110)***
(0.082)***
(0.143)***
(0.159)***
[0.011]***
[0.011]***
[0.016]***
[0.011]***
[0.006]***
[0.009]***
[0.007]***
[0.013]***
[0.017]***

∆4log(LP)t−1

0.352***
0.290***
0.014***
0.249***
1.003***
0.468***
0.283***
0.119***
0.263***
(0.101)***
(0.083)***
(0.004)***
(0.151)***
(0.252)***
(0.118)***
(0.096)***
(0.092)***
(0.152)***

[-0.010]*** [-0.009]***

[0.012]***

[-0.015]*** [-0.011]*** [-0.008]*** [-0.010]*** [-0.007]*** ∆4log(Input Factors)t−1

0.022***
(0.158)***

[-0.001]*** Number of crises / recessuib

63***
63***
63***
39***
24***
38***
60***
172***
53***
46***

Observations

1734***
1734***
1734***
666***
974***
1327***
1734***
1734***
1552***
1235***

Countries

17***
17***
17***
16***
16***
15***
17***
17***
17***
17***

Country FE

***
***
***
***
***
***
***
***
***

***p-value

0.890***
0.321***
0.910***
0.998***
0.977***
0.959***
0.465***
0.962***
0.951***

Pseudo R2

0.051***
0.027***
0.018***
0.050***
0.100***
0.052***
0.043***
0.017***
0.044***
0.058***

AUROC

0.705***
0.700***
0.727***
0.699***
0.766***
0.726***
0.692***
0.596***
0.695***
0.719***
(0.032)***
(0.030)***
(0.029)***
(0.040)***
(0.042)***
(0.040)***
(0.032)***
(0.023)***
(0.035)***
(0.038)***

Back

SLIDE 51

Alternative Crises Dates− Productivity - Reinhard & Rogoff

(1)*** (2)*** (3)*** (4)*** (5)*** ∆4log(Credit)t−1

0.197***
0.251***
0.284***
(0.209)***
(0.216)***
(0.223)***
[0.007]***
[0.008]***
[0.009]***

∆4log(TFP)util.−adj.

t−1

0.205***
0.265***
(0.115)***
(0.125)***

[-0.007]*** [-0.009]*** ∆4log(LP)t−1

0.213***
0.305***
(0.101)***
(0.122)***

[-0.007]*** [-0.010]*** Number of crises

58***
58***
58***
58***
58***

Observations

1500***
1500***
1500***
1500***
1500***

Countries

17***
17***
17***
17***
17***

Country FE

***
***
***
***
***

***p-value

0.989***
0.988***
0.985***
0.984***
0.981***

Pseudo R2

0.019***
0.018***
0.019***
0.026***
0.028***

AUROC

0.623***
0.611***
0.612***
0.644***
0.652***
(0.035)***
(0.035)***
(0.035)***
(0.036)***
(0.035)***

SLIDE 52

Alternative Crises Dates− Productivity - Laeven & Valencia

(1)*** (2)*** (3)*** (4)*** (5)*** ∆4log(Credit)t−1

0.641**
0.716***
0.740***
(0.285)**
(0.287)***
(0.294)***
[0.015]**
[0.015]***
[0.015]***

∆4log(TFP)util.−adj.

t−1

0.507***
0.555***
(0.173)***
(0.185)***

[-0.012]*** [-0.011]*** ∆4log(LP)t−1

0.546***
0.615***
(0.209)***
(0.248)***

[-0.013]*** [-0.012]*** Number of crises

18**
18***
18***
18***
18***

Observations

630**
630***
630***
630***
630***

Countries

15**
15***
15***
15***
15***

Country FE

**
***
***
***
***

***p-value

1.000**
1.000***
1.000***
1.000***
1.000***

Pseudo R2

0.046**
0.033***
0.033***
0.073***
0.077***

AUROC

0.645**
0.670***
0.665***
0.703***
0.714***
(0.074)**
(0.049)***
(0.049)***
(0.064)***
(0.063)***

SLIDE 53

Alternative Crises Dates− Productivity - Bordo et al.

(1)*** (2)*** (3)*** (4)*** (5)*** ∆4log(Credit)t−1

0.453***
0.527***
0.607***
(0.135)***
(0.141)***
(0.153)***
[0.012]***
[0.013]***
[0.014]***

∆4log(TFP)util.−adj.

t−1

0.170***
0.329***
(0.153)***
(0.154)***

[-0.005]*** [-0.008]*** ∆4log(LP)t−1

0.276***
0.502***
(0.123)***
(0.128)***

[-0.008]*** [-0.012]*** Number of crises

39***
39***
39***
39***
39***

Observations

1212***
1212***
1212***
1212***
1212***

Countries

16***
16***
16***
16***
16***

Country FE

***
***
***
***
***

***p-value

0.944***
0.960***
0.938***
0.889***
0.836***

Pseudo R2

0.046***
0.025***
0.030***
0.054***
0.066***

AUROC

0.699***
0.636***
0.652***
0.707***
0.728***
(0.037)***
(0.043)***
(0.042)***
(0.037)***
(0.036)***

SLIDE 54

Alternative Crises Dates− Productivity - Romer & Romer -

Any Financial Distress (>=1)

(1)*** (2)*** (3)*** (4)*** (5)*** ∆4log(Credit)t−1

0.226***
0.399***
0.479***
(0.195)***
(0.205)***
(0.207)***
[0.008]***
[0.011]***
[0.013]***

∆4log(TFP)util.−adj.

t−1

0.708***
0.776***
(0.155)***
(0.154)***

[-0.022]*** [-0.022]*** ∆4log(LP)t−1

0.812***
0.925***
(0.192)***
(0.190)***

[-0.024]*** [-0.025]*** Number of crises

32***
32***
32***
32***
32***

Observations

776***
776***
776***
776***
776***

Countries

17***
17***
17***
17***
17***

Country FE

***
***
***
***
***

***p-value

0.951***
0.950***
0.945***
0.729***
0.641***

Pseudo R2

0.028***
0.064***
0.069***
0.076***
0.086***

AUROC

0.632***
0.719***
0.722***
0.741***
0.753***
(0.046)***
(0.040)***
(0.040)***
(0.036)***
(0.036)***

SLIDE 55

Alternative Crises Dates− Productivity - Romer & Romer -

Severe Financial Distress (>=7)

(1)*** (2)*** (3)*** (4)*** (5)*** ∆4log(Credit)t−1

0.821***
0.911***
0.923***
(0.307)***
(0.289)***
(0.318)***
[0.016]***
[0.015]***
[0.015]***

∆4log(TFP)util.−adj.

t−1

0.590***
0.684***
(0.185)***
(0.184)***

[-0.013]*** [-0.011]*** ∆4log(LP)t−1

0.698***
0.788***
(0.217)***
(0.196)***

[-0.015]*** [-0.013]*** Number of crises

14***
14***
14***
14***
14***

Observations

504***
504***
504***
504***
504***

Countries

11***
11***
11***
11***
11***

Country FE

***
***
***
***
***

***p-value

0.969***
0.999***
0.999***
0.974***
0.967***

Pseudo R2

0.063***
0.042***
0.046***
0.104***
0.110***

AUROC

0.709***
0.685***
0.695***
0.792***
0.797***
(0.067)***
(0.064)***
(0.062)***
(0.048)***
(0.049)***

Back

SLIDE 56

Controls − Productivity (1)

Short-term

Nominal Interest rate

***

Long-term

Nominal Interest rate

***

Short-term

Real Interest rate

***

Credit-

to-GDP***

Nonmortgage

and Mortgage Credit

***

Firm

and Household Credit

*** ∆4log(LP)t−1

0.338***
0.299***
0.339***
0.185***
0.498***
0.591***
(0.105)***
(0.102)***
(0.106)***
(0.101)***
(0.105)***
(0.186)***

[-0.011]*** [-0.009]*** [-0.011]*** [-0.005]*** [-0.012]*** [-0.011]*** Number of crises

65***
69***
65***
63***
58***
27***

Observations

1722***
1880***
1713***
1730***
1636***
952***

Countries

16***
17***
16***
17***
17***
16***

Country FE

***
***
***
***
***
***

***p-value

0.973***
0.904***
0.973***
0.872***
0.905***
0.996***

Pseudo R2

0.034***
0.028***
0.034***
0.070***
0.077***
0.097***

AUROC

0.674***
0.646***
0.674***
0.712***
0.739***
0.762***
(0.035)***
(0.033)***
(0.035)***
(0.032)***
(0.030)***
(0.040)***

SLIDE 57

Controls − Productivity (2)

Inflation***
Investment-

to-GDP ***

Current

Account- to-GDP

***

Real

House Prices

***

Real

Stocks Prices

***

Gov. Debt-

to-GDP ***

∆4log(LP)t−1

0.241***
0.455***
0.314***
0.400***
0.352***
0.386***
(0.098)***
(0.112)***
(0.106)***
(0.153)***
(0.106)***
(0.111)***

[-0.007]*** [-0.013]*** [-0.009]*** [-0.012]*** [-0.010]*** [-0.011]*** Number of crises

69***
66***
66***
50***
59***
63***

Observations

1893***
1791***
1819***
1361***
1672***
1774***

Countries

17***
17***
17***
16***
17***
17***

Country FE

***
***
***
***
***
***

***p-value

0.907***
0.861***
0.890***
0.994***
0.923***
0.872***

Pseudo R2

0.029***
0.057***
0.042***
0.042***
0.043***
0.042***

AUROC

0.644***
0.711***
0.678***
0.700***
0.679***
0.682***
(0.033)***
(0.031)***
(0.032)***
(0.037)***
(0.033)***
(0.033)***

Back

SLIDE 58

Horse Race

∆_log(Credit)t−1

0.456***
0.414***
0.551***
0.503***
(0.130)***
(0.128)***
(0.146)***
(0.137)***
[0.013]***
[0.010]***
[0.015]***
[0.012]***

∆_Income Share 1%t−1

0.629***
0.608***
0.604***
(0.156)***
(0.164)***
(0.171)***
[0.017]***
[0.015]***
[0.014]***

∆_log(LP)t−1

0.221
0.366***
0.313***
(0.136)
(0.133)***
(0.119)***

[-0.007] [-0.010]*** [-0.007]*** Number of crises

29***
29***
29
29***
29***
29***

Observations

903***
903***
903
903***
903***
903***

Countries

16***
16***
16
16***
16***
16***

Country FE ***p-value Pseudo R2

0.028***
0.047***
0.006
0.070***
0.043***
0.083***

AUROC

0.676***
0.717***
0.585
0.769***
0.708***
0.765***
(0.050)***
(0.043)***
(0.052)
(0.037)***
(0.045)***
(0.037)***

Back

SLIDE 59

Part II: Recessions

SLIDE 60

GDP Response − Inequality

Year: h 1*** 2*** 3*** 4*** 5*** Average Recession ˆ β h

R

2.053***
1.375***
0.854*
2.316***
3.868***
(0.255)***
(0.438)***
(0.624)*
(0.679)***
(0.722)***

Excess Income Share Top 1% (ξ R

k,t)

ˆ γh

R

0.267***
0.853***
1.463*
2.785***
2.066***
(0.300)***
(0.515)***
(0.734)*
(0.799)***
(0.849)***

Observations

78***
78***
78*
78***
78***

SLIDE 61

GDP Response − Productivity

Year: h 1*** 2*** 3*** 4*** 5*** Average Recession ˆ β h

R

2.079***
1.035***
1.131***
2.602***
4.369***
(0.189)***
(0.331)***
(0.415)***
(0.543)***
(0.590)***

Excess LP (ξ R

k,t)

ˆ γh

R

0.139***
1.458***
1.727***
1.674***
1.286***
(0.278)***
(0.487)***
(0.611)***
(0.799)***
(0.868)***

Observations

155***
155***
155***
155***
155***

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SLIDE 62

Financial vs. Nonfinancial − Inequality

t t+1 t+2 t+3 t+4 t+5

4
2

2 4 6 t t+1 t+2 t+3 t+4 t+5

4
2

2 4 6 Back

SLIDE 63

Typical Patterns around Financial Crises - High Credit

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SLIDE 64

Typical Patterns around Financial Crises - Low Credit

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