Jonathan Bridges, Georgina Green and Mark Joy
Any distributional effects on credit of macroprudential policies are only one part of the distributional story. Relatively little is known about how such policies affect the income distribution in the longer term via their role in preventing crises or mitigating their severity. Our paper helps to fill that gap in the literature by looking at the impact of past recessions and crises on inequality, and the amplifying roles of credit and capital within that. This helps to shed light on the distributional implications of not intervening – in the form of an amplified recession. We find that inequality rises following recessions and that rapid credit growth prior to recessions exacerbates that effect by around 40%.
