Abstract
Relying on the methodology of deviation cycle dynamics, we analyze whether the association of wealth inequality measures and the real, financial and housing cycle are nationally idiosyncratic. Making use of recently available long time series for France, the United Kingdom (U.K.) and the United States (U.S.), we establish evidence in support of stock market returns co-moving with wealth concentration. However, this holds only for time series of the two studied Anglo-Saxon economies. The top one percent wealth share dynamics evolve procyclically across the housing, real and financial cycle dimension for the U.S. only. Cyclical growth of the French national product coincides with a falling wealth share of top and bottom percentiles and an increasing share of the middle class. No corresponding relationship was found for the U.S. and the U.K. Vector autoregressions (VAR) with single-shock identification confirm our frequency domain results. In the VAR(X) estimates, controlling for the subprime mortgage crisis statistically matters for the wealth concentration response to shocks in housing and stock prices and gross domestic product for the U.S. A control for the European sovereign debt crisis in the case of France is statistically insignificant.
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Notes
As the quantitative analysis for the U.S. middle 40 percent and bottom 50 percent wealth shares did not generate statistically significant results at any conventional level of significance, we refrain from displaying corresponding series and estimates.
To warrant the ranges of series reported in notes to Table 1 required the imputation of missing values, which we tried to keep to a minimum; see also notes to Figs. 1 and 2. Nevertheless the findings are qualitatively in line with (the less precise) estimates that fully abstract from imputing missing values. Corresponding results are available on request from the authors.
Note, for a shorter subperiod (starting 1963) the analysis reveals a medium strength positive correlation between the French wealth share of the middle 40 percent (0.33), and moderately strong negative correlations with the top 10 percent (-0.49) and top one percent (-0.49) wealth shares with all correlations significant at the five percent level. The shorter subperiod likely puts more importance to the most recent housing crash which possibly is driving this negative correlation. Wealthier individuals would have lost a higher portion of wealth compared to middle class individuals. Detailed results are available on request from the authors.
As these series are not in levels, our interpretation is restricted to relative effect sizes of IRFs and the vertical axes is not labeled as is common practice in the literature (e.g., Bernanke et al.2005, pp. 408–411).
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Acknowledgments
We thank Gregor von Schweinitz, the editor, and two anonymous referees for very helpful comments and suggestions that markedly improved our paper.
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Bryant, C., Süssmuth, B. Is the Relationship of Wealth Inequality with the Real, Financial and Housing Cycle Country-Specific?. Atl Econ J 47, 323–341 (2019). https://doi.org/10.1007/s11293-019-09630-9
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DOI: https://doi.org/10.1007/s11293-019-09630-9