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Author: Kyoungsoo Yoon
Publisher:
ISBN:
Category :
Languages : en
Pages : 91
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Book Description
Abstract: The two essays in my dissertation clarify the role of household debt and housing wealth in the U.S. economy because the effect of household debt and house prices on economic activity is conflicting based on existing empirical literature. In my first essay, Three Competing Effects of Expansion in Housing Finance on Consumption, I explicitly consider both debt service burden and wealth risk by adjusting income data with debt service and wealth data with its risk. Based on split-sample estimates of various consumption functions with different time horizons together with the data adjustment, I find that expansion in housing finance since the mid 1980s has three competing effects on consumption. First, housing finance expansion decreases the sensitivity of a household's consumption response to short-run and medium-run movements in income via a relaxed credit constraint. Second, an increase in the liquidity of housing wealth leads to a bigger response of consumption to changes in house prices. However, this increased housing wealth effect can be mitigated or magnified from the last competing effect of increased debt service, depending on the directions of movements in house prices and interest rates. Thus, the net effect of expanded housing finance on consumption depends on the relative magnitudes of the three competing effects in the face of movements in income, house prices, and interest rates. The second essay, The Role of Household Debt and Housing Wealth in the Recent Downturn of the U.S. Economy, uses state-level household debt and housing wealth data built from the Consumer Finance Monthly survey together with measures of economic activity at the state level during the business cycle of 2002-2009 in the U.S. to overcome limitations associated with national-level aggregate data. I find that increased household debt combined with large positive and negative fluctuations in housing wealth led to the recent severe downturn of the U.S. economy. While the increased debt service burden itself negatively affects consumption, households' attitudes toward debt surveyed as debt stress also seem to suppress economic activity such as consumption spending and residential investment.
Author: Kyoungsoo Yoon
Publisher:
ISBN:
Category :
Languages : en
Pages : 91
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Book Description
Abstract: The two essays in my dissertation clarify the role of household debt and housing wealth in the U.S. economy because the effect of household debt and house prices on economic activity is conflicting based on existing empirical literature. In my first essay, Three Competing Effects of Expansion in Housing Finance on Consumption, I explicitly consider both debt service burden and wealth risk by adjusting income data with debt service and wealth data with its risk. Based on split-sample estimates of various consumption functions with different time horizons together with the data adjustment, I find that expansion in housing finance since the mid 1980s has three competing effects on consumption. First, housing finance expansion decreases the sensitivity of a household's consumption response to short-run and medium-run movements in income via a relaxed credit constraint. Second, an increase in the liquidity of housing wealth leads to a bigger response of consumption to changes in house prices. However, this increased housing wealth effect can be mitigated or magnified from the last competing effect of increased debt service, depending on the directions of movements in house prices and interest rates. Thus, the net effect of expanded housing finance on consumption depends on the relative magnitudes of the three competing effects in the face of movements in income, house prices, and interest rates. The second essay, The Role of Household Debt and Housing Wealth in the Recent Downturn of the U.S. Economy, uses state-level household debt and housing wealth data built from the Consumer Finance Monthly survey together with measures of economic activity at the state level during the business cycle of 2002-2009 in the U.S. to overcome limitations associated with national-level aggregate data. I find that increased household debt combined with large positive and negative fluctuations in housing wealth led to the recent severe downturn of the U.S. economy. While the increased debt service burden itself negatively affects consumption, households' attitudes toward debt surveyed as debt stress also seem to suppress economic activity such as consumption spending and residential investment.
Author: Mr.Adrian Alter
Publisher: International Monetary Fund
ISBN: 1513530267
Category : Business & Economics
Languages : en
Pages : 43
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Book Description
To identify and quantify downside risks to housing markets, we apply the house price-at-risk methodology to a sample of 37 cities across the United States and Canada using quarterly data from 1983 to 2018. This paper finds that downside risks to housing markets in the United States have seemingly fallen over the past decade, while having increased in Canada. Supply-side drivers, valuation, household debt, and financial conditions jointly play a key role in forecasting house price risks. In addition, capital flows are found to be significantly associated with future downside risks to major housing markets, but the net effect depends on the type of flows and varies across cities and forecast horizons. Using micro-level data, we identify households vulnerable to potential housing shocks and assess the riskiness of household debt.
Author: Cindy K. Soo
Publisher:
ISBN:
Category :
Languages : en
Pages : 168
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Book Description
Author: Thomas Herndon
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This dissertation consists of three essays which analyze the role of household debt in the financial crisis of 2007-2009, and weak recovery that followed. In these essays, I pursue the following research topics: 1) Estimation of the effects of mortgage fraud on losses to foreclosure, 2) Estimation of whether loan modifications increased or decreased debt, and 3) Analyzing the historical evolution of housing finance regulation to advance a proposal for reform. While formally independent, these essays share a common theoretical perspective located at the intersection of financial macroeconomics and political economy. These essays analyze how conflicts of interest and inside information in the structure of private mortgage securitization generated perverse incentives that increased financial fragility. These problems caused large losses to foreclosure for borrowers, investors, and the communities in which the foreclosures were located in. The first essay describes how mortgage fraud by the financial services industry concentrated risk and leverage on the borrowers least able to bear it. The industry then deceived investors who bought securities based on these mortgages about the level of risk they were taking on. This essay finds that excess losses to foreclosure borne by investors due to fraud were substantial, prolonged through time, and concentrated in economically fragile communities that did not recover from the financial crisis. The second essay discusses how a conflict of interest between loan servicers and investors impeded efficient debt restructuring in loan modifications. This essay finds that instead of mitigating losses for investors by forgiving debt, servicers increased borrowers' debt by imposing punitive fees. However, while these fees were profitable for servicers, they resulted in larger eventual losses for investors due to redefaults. The final essay locates the failures identified by the first two essays within the larger historical evolution of housing financial regulation. This essay proposes the creation of a new public option for household finance which would provide regulatory tools to prevent consumer protection abuses.
Author: Claudia Ayanna Sitgraves
Publisher:
ISBN:
Category :
Languages : en
Pages : 334
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Book Description
This dissertation explores the effects of fluctuations in housing values on household saving and investment decisions. Chapter 1 examines the relationship between changes in housing values and household saving decisions. Fluctuations in housing values may affect household saving and consumption by increasing households' perceived wealth, or by relaxing borrowing constraints. Moreover, the increased liquidity of home equity during the recent housing boom may have led household behavior to respond more than in past years to changes in housing wealth. This chapter is the first analysis to provide evidence from household-level microdata suggesting that the housing wealth effect may have increased in line with increased access to housing-collateralized debt. Using data from the Survey of Income and Program Participation for the years 1984 - 2003, I estimate an average elasticity of household active saving with respect to MSA-level house prices of -0.222, which corresponds to a 1 cent decrease in annual active saving when housing wealth increases by 1 dollar. When I estimate housing wealth effects separately between 1984 and 1990, and between 1996 and 2003, I find smaller effects during the earlier period, but large and significant effects during the later period. During the later period, I estimate an average elasticity of household active saving with respect to MSA-level house prices of -1.044, which corresponds to a 3 cent decrease in annual active saving when housing wealth increases by 1 dollar. Further evidence comparing the magnitude of the wealth effect between different subpopulations -- older homeowners versus younger homeowners, and recent homebuyers versus those with longer tenure -- suggests that a relaxation of liquidity constraints, rather than changes in the composition of the homeowner population, is a central factor contributing to the increase in the housing wealth effect. Chapter 2 explores the connection between growth in housing values, uncertainty over future housing values, and property owners' investments in housing. Residential housing is a significant share of most American households' asset holdings. As such, the decision to build, to buy, or to make significant improvements to a home is driven not only by consumption considerations, but is also an investment decision. By modeling property owners' housing investment decisions using a framework of optimal capital investment where investments are irreversible and there is uncertainty in future asset values, this analysis theoretically predicts and empirically estimates the extent to which property owners respond to changes in the profitability of housing investment by making investments in their stock of housing. Using a unique dataset of residential sales, geographic information, and the universe of building permits issued in Los Angeles between 1999 and 2008, and focusing on nonresident landlords and "improver-movers"--Owner-occupiers who make improvements to their properties and subsequently sell the property, I find that when housing values increase, property owners are more likely to make capital investments, and that the value and square footage of these investments is larger. When house price volatility is high, property owners are less likely to make investments. However, conditional on the decision to invest, the value and square footage of investments is larger. This result is shown to be a consequence of property owners' optimally delaying capital investment when uncertainty over future prices is high. Chapter 3 documents the extent to which residential real estate development is cyclical - exhibiting periods of rapid expansion followed by periods of rapid contraction - using New York City as a case study. This chapter provides an overview of residential development activity in New York City during the years 2000 - 2008. In this analysis, I describe the effects of this real estate "boom" on the housing market in New York City during these years, and characterize the long-term effects of the "boom" and subsequent "bust" in residential development on the composition of the City's housing stock. Economic theories of cyclicality in real estate markets, outlined in this chapter, show that uncertainty over the exact timing of price declines coupled with a long development lag can lead to buildings being completed and new units entering the market even as prices decline. Although the elasticity of housing supply is lower in New York City than in other areas, building activity tends to follow a boom-and-bust pattern similar to other areas. Neighborhoods with higher levels of amenities experienced more growth in residential housing supply, and public involvement in development activity (both to facilitate and to restrict development) became less important for builders as the boom progressed. As building activity slows, City officials and developers are taking steps to ensure that stalled construction sites, rather than becoming eyesores and safety hazards, are preserved for future use.
Author: G. Constantinides
Publisher: Elsevier
ISBN: 9780444513632
Category : Business & Economics
Languages : en
Pages : 698
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Book Description
Arbitrage, State Prices and Portfolio Theory / Philip h. Dybvig and Stephen a. Ross / - Intertemporal Asset Pricing Theory / Darrell Duffle / - Tests of Multifactor Pricing Models, Volatility Bounds and Portfolio Performance / Wayne E. Ferson / - Consumption-Based Asset Pricing / John y Campbell / - The Equity Premium in Retrospect / Rainish Mehra and Edward c. Prescott / - Anomalies and Market Efficiency / William Schwert / - Are Financial Assets Priced Locally or Globally? / G. Andrew Karolyi and Rene M. Stuli / - Microstructure and Asset Pricing / David Easley and Maureen O'hara / - A Survey of Behavioral Finance / Nicholas Barberis and Richard Thaler / - Derivatives / Robert E. Whaley / - Fixed-Income Pricing / Qiang Dai and Kenneth J. Singleton.
Author: Thomas A. Durkin
Publisher:
ISBN: 0195169921
Category : Business & Economics
Languages : en
Pages : 737
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Book Description
Consumer Credit and the American Economy examines the economics, behavioral science, sociology, history, institutions, law, and regulation of consumer credit in the United States. After discussing the origins and various kinds of consumer credit available in today's marketplace, this book reviews at some length the long run growth of consumer credit to explore the widely held belief that somehow consumer credit has risen "too fast for too long." It then turns to demand and supply with chapters discussing neoclassical theories of demand, new behavioral economics, and evidence on production costs and why consumer credit might seem expensive compared to some other kinds of credit like government finance. This discussion includes review of the economics of risk management and funding sources, as well discussion of the economic theory of why some people might be limited in their credit search, the phenomenon of credit rationing. This examination includes review of issues of risk management through mathematical methods of borrower screening known as credit scoring and financial market sources of funding for offerings of consumer credit. The book then discusses technological change in credit granting. It examines how modern automated information systems called credit reporting agencies, or more popularly "credit bureaus," reduce the costs of information acquisition and permit greater credit availability at less cost. This discussion is followed by examination of the logical offspring of technology, the ubiquitous credit card that permits consumers access to both payments and credit services worldwide virtually instantly. After a chapter on institutions that have arisen to supply credit to individuals for whom mainstream credit is often unavailable, including "payday loans" and other small dollar sources of loans, discussion turns to legal structure and the regulation of consumer credit. There are separate chapters on the theories behind the two main thrusts of federal regulation to this point, fairness for all and financial disclosure. Following these chapters, there is another on state regulation that has long focused on marketplace access and pricing. Before a final concluding chapter, another chapter focuses on two noncredit marketplace products that are closely related to credit. The first of them, debt protection including credit insurance and other forms of credit protection, is economically a complement. The second product, consumer leasing, is a substitute for credit use in many situations, especially involving acquisition of automobiles. This chapter is followed by a full review of consumer bankruptcy, what happens in the worst of cases when consumers find themselves unable to repay their loans. Because of the importance of consumer credit in consumers' financial affairs, the intended audience includes anyone interested in these issues, not only specialists who spend much of their time focused on them. For this reason, the authors have carefully avoided academic jargon and the mathematics that is the modern language of economics. It also examines the psychological, sociological, historical, and especially legal traditions that go into fully understanding what has led to the demand for consumer credit and to what the markets and institutions that provide these products have become today.
Author: M. Ayhan Kose
Publisher: World Bank Publications
ISBN: 1464815453
Category : Business & Economics
Languages : en
Pages : 403
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Book Description
The global economy has experienced four waves of rapid debt accumulation over the past 50 years. The first three debt waves ended with financial crises in many emerging market and developing economies. During the current wave, which started in 2010, the increase in debt in these economies has already been larger, faster, and broader-based than in the previous three waves. Current low interest rates mitigate some of the risks associated with high debt. However, emerging market and developing economies are also confronted by weak growth prospects, mounting vulnerabilities, and elevated global risks. A menu of policy options is available to reduce the likelihood that the current debt wave will end in crisis and, if crises do take place, will alleviate their impact.
Author: Stephen Broadberry
Publisher: Cambridge University Press
ISBN: 1139448358
Category : History
Languages : en
Pages : 363
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Book Description
This unique volume offers a definitive new history of European economies at war from 1914 to 1918. It studies how European economies mobilised for war, how existing economic institutions stood up under the strain, how economic development influenced outcomes and how wartime experience influenced post-war economic growth. Leading international experts provide the first systematic comparison of economies at war between 1914 and 1918 based on the best available data for Britain, Germany, France, Russia, the USA, Italy, Turkey, Austria-Hungary and the Netherlands. The editors' overview draws some stark lessons about the role of economic development, the importance of markets and the damage done by nationalism and protectionism. A companion volume to the acclaimed The Economics of World War II, this is a major contribution to our understanding of total war.
Author: Financial Crisis Inquiry Commission
Publisher: Cosimo, Inc.
ISBN: 1616405414
Category : Political Science
Languages : en
Pages : 692
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Book Description
The Financial Crisis Inquiry Report, published by the U.S. Government and the Financial Crisis Inquiry Commission in early 2011, is the official government report on the United States financial collapse and the review of major financial institutions that bankrupted and failed, or would have without help from the government. The commission and the report were implemented after Congress passed an act in 2009 to review and prevent fraudulent activity. The report details, among other things, the periods before, during, and after the crisis, what led up to it, and analyses of subprime mortgage lending, credit expansion and banking policies, the collapse of companies like Fannie Mae and Freddie Mac, and the federal bailouts of Lehman and AIG. It also discusses the aftermath of the fallout and our current state. This report should be of interest to anyone concerned about the financial situation in the U.S. and around the world.THE FINANCIAL CRISIS INQUIRY COMMISSION is an independent, bi-partisan, government-appointed panel of 10 people that was created to "examine the causes, domestic and global, of the current financial and economic crisis in the United States." It was established as part of the Fraud Enforcement and Recovery Act of 2009. The commission consisted of private citizens with expertise in economics and finance, banking, housing, market regulation, and consumer protection. They examined and reported on "the collapse of major financial institutions that failed or would have failed if not for exceptional assistance from the government."News Dissector DANNY SCHECHTER is a journalist, blogger and filmmaker. He has been reporting on economic crises since the 1980's when he was with ABC News. His film In Debt We Trust warned of the economic meltdown in 2006. He has since written three books on the subject including Plunder: Investigating Our Economic Calamity (Cosimo Books, 2008), and The Crime Of Our Time: Why Wall Street Is Not Too Big to Jail (Disinfo Books, 2011), a companion to his latest film Plunder The Crime Of Our Time. He can be reached online at www.newsdissector.com.
