Working Papers

2017-23 | September 2017


Historical Patterns of Inequality and Productivity around Financial Crises


Leading up to the Great Recession, the U.S. economy experienced a massive expansion of credit, a slowdown in productivity growth, and a rapid increase in income inequality. All of these developments may have contributed to an unusual buildup of financial instability. This paper explores the contribution of each of these three developments in explaining financial crises using long-run historical data for 17 advanced economies. Previous research showed that credit growth is a robust predictor of financial fragility. I find that changes in top income shares and productivity growth are strong early warning indicators as well. In fact, changes in top income shares outperform credit as crises predictors. Moreover, financial recessions that are preceded by strong increases in income inequality or low productivity growth are also associated with deeper and slower recoveries. Overall, the results indicate that both the productive capacity of an economy and the distribution of income matter for financial stability.

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Article Citation

Paul, Pascal. 2017. "Historical Patterns of Inequality and Productivity around Financial Crises," Federal Reserve Bank of San Francisco Working Paper 2017-23. Available at