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Inequality, Credit boom and Crisis: Reflection on Subprime Crisis
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TitleInequality, Credit boom and Crisis: Reflection on Subprime Crisis  
AuthorYin Jianfeng and Wang Zengwu  
OrganizationUniversity of International Business and Economics; 
Key WordsInequality; Credit Boom; Crisis 
AbstractWith the background of U.S. subprime mortgage crisis in 2007, we build an overlapping-generations model in which exogenous inequality exists in the same generation to analyze the relationship between inequality, credit boom and crisis. We find rising inequality results in endogenous credit boom through concentration of financial asset in richer households and concentration of financial liability in poorer ones, and as stylized facts of subprime crisis show, the whole household sector's saving rate and interest rate decrease while housing price increases. During this process, observing the total balance sheet of household sector underestimates the real risk because the leverage and default rate of households with lower income are much higher than average level. 
Serial NumberWP1241 
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