Investigating the asymmetric effect of income inequality on financial fragility in South Africa and selected emerging markets: a Bayesian approach with hierarchical priors

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dc.contributor.authorGreyling, Lorraine
dc.contributor.authorZungu, Lindokuhle Talent
dc.coverage.conferenceissn
dc.date.accessioned2026-03-26T13:05:43Z
dc.date.available2026-03-26T13:05:43Z
dc.date.issued2023
dc.departmentNameEconomics
dc.description.abstractPurpose: This study aims to test the validity of the Rajan theory in South Africa and other selected emerging markets (Chile, Peru and Brazil) during the period 1975–2019. Design/methodology/approach: In this study, the researchers used time-series data to estimate a Bayesian Vector Autoregression (BVAR) model with hierarchical priors. The BVAR technique has the advantage of being able to accommodate a wide cross-section of variables without running out of degrees of freedom. It is also able to deal with dense parameterization by imposing structure on model coefficients via prior information and optimal choice of the degree of formativeness. Findings: The results for all countries except Peru confirmed the Rajan hypotheses, indicating that inequality contributes to high indebtedness, resulting in financial fragility. However, for Peru, this study finds it contradicts the theory. This study controlled for monetary policy shock and found the results differing country-specific. Originality/value: The findings suggest that an escalating level of inequality leads to financial fragility, which implies that policymakers ought to be cautious of excessive inequality when endeavouring to contain the risk of financial fragility, by implementing sound structural reform policies that aim to attract investments consistent with job creation, development and growth in these countries. Policymakers should also be cautious when implementing policy tools (redistributive policies, a sound monetary policy), as they seem to increase the risk of excessive credit growth and financial fragility, and they need to treat income inequality as an important factor relevant to macroeconomic aggregates and financial fragility.
dc.facultyFaculty of Commerce, Administration and Law
dc.identifier.citationZungu, L.T. and Greyling, L. 2025. Investigating the asymmetric effect of income inequality on financial fragility in South Africa and selected emerging markets: a Bayesian approach with hierarchical priors. International Journal of Emerging Markets, 20(13), pp.122-152.
dc.identifier.issn1746-8817
dc.identifier.otherhttps://doi.org/10.1108/IJOEM-12-2022-1929
dc.identifier.urihttp://hdl.handle.net/10530/59042
dc.inproceedingsissn
dc.issuenumber20 / 13
dc.keynoteissn
dc.language.isoEnglish
dc.pages122 - 152
dc.peerreviewedYes
dc.publisherEmerald
dc.subjectBayesian Vector Autoregression (BVAR)
dc.subjectEmerging markets
dc.subjectFinancial fragility
dc.subjectHierarchical priors
dc.subjectIncome inequality
dc.titleInvestigating the asymmetric effect of income inequality on financial fragility in South Africa and selected emerging markets: a Bayesian approach with hierarchical priors
dc.title.journalInternational Journal of Emerging Markets
dc.typeJournal Article
dspace.entity.typePublication
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