Does the Consumption Inequality Channel Impact the Transmission of Positive Income Inequality Shocks to Credit Dynamics in South Africa? Insights Before 2009Q1
Evidence indicates that credit increases significantly due to positive income inequality shocks. The study further determines the role of consumption inequality and consumption growth channels using counterfactual VAR models in transmitting positive income inequality shocks to credit extension. The actual credit rises more than the counterfactual responses suggesting that consumption growth, consumption inequality and inequalities in consumption categories amplify the increase in credit due to the positive income inequality shocks. This implies that macroprudential regulators should put mechanisms in place which should prevent credit extension that is not driven by fundamentals as this may lead to crises and unproductive uses.
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