resolving new keynesian anomalies with wealth in the utility function at the zero lower bound the new keynesian model predicts that output and inflation collapse to implausibly low levels and that government spending and forward guidance have implausibly large effects to resolve these anomalies we introduce wealth into the utility function the justification is that wealth is a marker of social status and people value status since people partly save to accrue social status the euler equation is modified as a result when the marginal utility of wealth is sufficiently large the dynamical system representing the zero lower bound equilibrium transforms from a saddle to a source which resolves all the anomalies

an analysis of default risk in mobile home credit abstract there are approximately us 22 billion in outstanding receivables and an active secondary market for mobile home credit in the united states this important segment of the financing industry shares some attributes with traditional home mortgage financing and other attributes with consumer credit in this paper we draw on the mortgage literature to postulate the determinants of default risk for mobile home loans using multivariate logit models we investigate the relevance of payment history loan terms borrower characteristics economic conditions and legal constraints in analyzing loan defaults and delinquencies payment history emerges as the overwhelming factor in predicting the likelihood of default

non zero sum stochastic differential reinsurance and investment games with default risk this paper investigates the implications of strategic interaction i e competition between two cara insurers on their reinsurance investment policies the two insurers are concerned about their terminal wealth and the relative performance measured by the difference in their terminal wealth the problem of finding optimal policies for both insurers is modelled as a non zero sum stochastic differential game the reinsurance premium is calculated using the variance premium principle and the insurers can invest in a risk free asset a risky asset with heston s stochastic volatility and a defaultable corporate bond we derive the nash equilibrium reinsurance policy and investment policy explicitly for the game and prove the corresponding verification theorem the equilibrium strategy indicates that the best response of each insurer to the competition is to mimic the strategy of its opponent consequently either the reinsurance strategy or the investment strategy of an insurer with the relative performance concern is riskier than that without the concern numerical examples are provided to demonstrate the findings of this study

co monotonicity toward a utility function capturing envy abstract envy affects economic decisions and can lead to monotonicity violation we introduce co monotonicity a generalization of monotonicity expected to hold even in the presence of envy experimental results and implications for the form of possible utility functions are discussed

long run welfare under externalities in consumption leisure and production a case for happy degrowth vs unhappy growth in this paper we contribute to the debate on the relationship between growth and well being by examining an endogenous growth model where we allow for externalities in consumption leisure and production we analyze three regimes a decentralized economy where each household makes isolated choices without considering their external effects a planned economy where a myopic planner fails to recognize both leisure and consumption externalities but recognizes production externalities and a planned economy with a fully informed planner we first compare the balanced growth paths under the three regimes and then we numerically investigate the transition to the optimal balanced growth path we provide a number of findings first in a decentralized economy growth or labor or both are greater than in the regime with a fully informed planner and hence are sub optimal from a welfare standpoint second a myopic intervention which overlooks consumption and leisure externalities leads to more growth and labor than in both the decentralized and the fully informed regime third we provide a case for happy degrowth a transition to the optimal balanced growth path that is associated with downscaling of production a reduction in private consumption and an ongoing increase in leisure and well being

occupation induced status social norms and economic growth abstract we analyse a monetary growth model where entrepreneurs borrow funds to invest in projects that produce capital goods in addition to their varying pecuniary returns different projects also vary with respect to the status they confer to the entrepreneurs who operate them we show that i social status increases the growth rate but this effect is mitigated by a social norm that inversely links overall levels of employment in the high return project with the status conferred to it ii the combined effect of social status and inflation is a source of transitional dynamics in an environment where such dynamics would not emerge if considerations of occupational prestige were absent iii when the social norm affects social status the economy s dynamics may be manifested in the form of endogenous volatility iv the presence and characteristics of social status can generate a negative correlation between volatility and growth

keeping up with the ageing joneses in this paper we consider the implications of relative consumption externalities in the blanchard yaari overlapping generations framework unlike most of the macroeconomic literature that studies this question the differences between agents and thus in their relative position persist in equilibrium we show in our fixed employment model that consumption externalities lower consumption and the capital stock in long run equilibrium a result in sharp contrast to the recent findings of liu and turnovsky 2005 in addition we solve for the intertemporal path of the economy to investigate its response to demographic shocks specifically to permanent changes in the birth and death rates

renewable energy sources in the spanish electricity market instruments and effects the implementation of directive 2001 77 ec on the promotion of electricity produced from renewable sources sets a target of 22 1 of electricity consumption in the eu in 2010 and establishes various mechanisms that member countries may adopt depending on their needs this paper analyses these mechanisms their implementation in spain by means of rd 661 2007 and the degree of fulfilment of objectives it concludes with an analysis of the effectiveness of the mechanisms adopted and recommendations on market design

optimal dynamic taxation with distinctive forms of social status attainment we examine the role of both consumption and wealth induced social comparisons in setting dynamic optimal income taxation under complete information state invariant labor income taxes are used to remedy the externality caused by consumption induced social comparisons while state contingent capital income taxes are used to remedy the externalities caused by both consumption and wealth induced ones under incomplete information distinct types of agents are subject to an identical marginal capital income tax which removes social comparisons to solve the information problem low productivity agents could be subject to a lower marginal labor tax than high productivity agents which contradicts the traditional result in the mirrlees stiglitz models this article is protected by copyright all rights reserved

intrafamiliar consumption and saving under altruism and wealth considerations this paper introduces a non cooperative and dynamic framework of intrafamiliar decisions where the partners obtain utility from own consumption account for the partner s benefit from consumption altruism and appreciate wealth stationary wealth and thus stationary consumption decreases with respect to altruism under cooperation but increases in the subgame perfect equilibrium in linear markov perfect strategies moreover non cooperation reduces savings and altruism mitigates this effect however altruism is an imperfect substitute for commitment and of course for cooperation because open loop strategies although independent of altruism result in greater wealth

the relative termination experience of adjustable to fixed rate mortgages our study uses a multinomial logit model to analyze the concurrent termination experience of adjustable rate and fixed rate mortgages a new set of arm specific interactive determinants expands the conventional frm specification to isolate the unique termination behavior of arms we find that expected rate adjustments and large lifetime caps are positively related to arm termination probabilities while long adjustment frequencies are inversely related caps both periodic and lifetime have a secondary inverse effect on termination probabilities when interest rate movements exceed cap limits the model also shows that interest rate expectations affect frm terminations more strongly than arm terminations in september 1981 commitment rates on fixed rate mortgages frms peaked at 18 after a 3 year 850 basis point rise lenders encumbered with losses from devalued frm portfolios faced insolvency while mortgage applicants constrained by large payment burdens contended with disqualification adjustable rate mortgages arms emerged as a solution to both problems the adjusting note rate allowed lenders to hedge their portfolios against rising interest rates and the discounting of initial arm rates kept household payment ratios within underwriting guidelines the benefit of arms remains questionable however because of the uncertainty surrounding their future payment streams in particular the shift of interest rate risk to borrowers may result in higher default and prepayment risks to lenders uncertainty is further compounded by nonstandard contracts for buydown terms period caps life caps indexes and adjustment periods originators and insurers of arms as well as investors in the emerging market for arm backed securities need arm specific methods for evaluating the cashflow risks of these unique instruments in this paper we address these issues by examining the concurrent default and prepayment experience of arms

renewable energy consumption economic growth nexus in turkey abstract this paper examines the renewable energy consumption economic growth causality nexus in turkey studies in the literature can be grouped as country specific and multi country studies the results of these studies are inconsistent and there is no agreement on the existence or the direction of causality between renewable energy consumption and economic growth the results of this country specific study support conservation hypothesis the results of empirical tests from ardl approach show that renewable energy consumption has a negative impact on economic growth and the ones of toda yamamoto causality tests show that there is a unidirectional causality running from economic growth to renewable energy consumption

macroeconomic implications of conspicuous consumption a sombartian dynamic model this chapter presents a dynamic general equilibrium model in which consumers have status preference i investigate the manner in which capital accumulation is impeded by conspicuous consumption a la corneo and jeanne j public econ 66 55 71 1997a following the literature social norms are given as either bandwagon type or snob type i then show that when the economy is characterized by a bandwagon type social norm capital accumulation exhibits interesting patterns those patterns include for example an oscillating convergence path the rise of the economy feeds its decay through conspicuous consumption and that decay suppresses conspicuous consumption and engenders prosperity as predicted by sombart liebe luxus und kapitalismus reprinted 1967 deutscher taschenbuch verlag munchen 1912

adjustable and fixed rate mortgages as a screening mechanism for default risk abstract this paper studies how borrowers with different levels of default risk would self select between fixed rate mortgages frms and adjustable rate mortgages arms we show that under asymmetric information where the risk type of a borrower is private information to the borrower and not known by the lender the unique equilibrium may be a separating equilibrium in which the high risk low risk borrowers choose arms frm s thus the borrower s mortgage choice will serve as a signal of default risk enabling lenders to screen high risk and low risk borrowers it is possible for the separating equilibrium to yield positive economic profits for lenders in a competitive market it is also possible to have a unique pooling equilibrium where all borrowers choose either frms or arms the model implies that an increase in the proportion of high risks will increase the likelihood of a separating equilibrium where both mortgage types are offered also a uniform downward shift in the expected change in the interest rate or an increase in borrowers current or future incomes make arms more attractive for both types of borrowers

why countries with the same technology and preferences can have different growth rates abstract a standard ak model of endogenous growth has been extended to allow for an intertemporal conflict between capitalists and workers for the dynamic game thus obtained an equilibrium solution in feedback nash markovian strategies have been computed however many equilibria in trigger strategies can dominate the former there are dominating strategies that depend on the country specific bargaining power of the workers versus capitalists they are both pareto optimal and subgame perfect this provides an explanation why countries which are completely identical in preferences technology and factor endowments can experience different long term growth rates

rural property tax delinquency and recession in agriculture agricultural recession causes the property tax delinquency rate to increase in rural counties the annual volume of unpaid property taxes as a percent of the tax levy is regressed on the farm debt asset ratio farm and nonfarm income and the ratio of the interest rate to the delinquency penalty rate data from thirteen agriculturally dependent indiana counties are used increases in the debt asset ratio and decreases in farm and nonfarm income are found to increase delinquency delinquency is also used as a source of capital when interest rates exceed the penalty rate

wealth seeking reconsidered abstract if individuals are interested in their relative wealth position they engage in contests for wealth this leads to a steady state with overaccumulation in a simple growth model it is shown that if some individuals are engaged in wealth seeking activity but others are not the latter might benefit however wealth seeking is not welfare enhancing under usual assumptions concerning production technology the steady state equilibrium is characterized by a marginal productivity of capital that is below the steady state rate of time preference and by emergence of a class structure

a model of mortgage default in this paper we solve a dynamic model of households mortgage decisions incorporating labor income house price inflation and interest rate risk using a zero profit condition for mortgage lenders we solve for equilibrium mortgage rates given borrower characteristics and optimal decisions the model quantifies the effects of adjustable versus fixed mortgage rates loan to value ratios and mortgage affordability measures on mortgage premia and default mortgage selection by heterogeneous borrowers helps explain the higher default rates on adjustable rate mortgages during the recent u s housing downturn and the variation in mortgage premia with the level of interest rates

credit rationing race and the mortgage market abstract this study applies microdata from the 1983 survey of consumer finances to evaluate the effects of borrower race and default risk in mortgage lending the empirical analysis is based on a probit model of whether borrowers obtain fha or conventional mortgages the former are fully insured and are characterized by easier downpayment constraints but are typically more expensive hence households borrowing through the fha will tend to be credit constrained in the conventional market results of the analysis indicate that variables which proxy lender concerns about default risk and cost have an important effect on the type of loan borrowers obtain empirical estimates also suggest that minority households are significantly less likely to obtain conventional financing than whites even after controlling for various proxies of default risk these results suggest that race effects in mortgage lending may persist for reasons unrelated to borrower default risk

social status education and growth this paper investigates the implications of social rewards on the allocation of talent in society and consequently on the process of economic growth we consider two sources of heterogeneity among workers nonwage income and innate ability a greater emphasis on status may induce the wrong individuals that is those with low ability and high wealth to acquire schooling causing workers with high ability and low wealth to leave the growth enhancing industries this crowding out effect taken alone discourages growth growth may be enhanced by a more egalitarian distribution of wealth which reduces the demand for status

on relative wealth effects and the optimality of growth abstract we present a model of endogenous growth in which a desire for social status lead individuals to care about their relative wealth the growth rate of the economy is socially optimal if the status motive is sufficiently important but the presence of status seeking may also lead to excessive growth

international status seeking trade and growth leadership we study a two country endogenous growth model where the utility of agents in developing countries is affected by consumption gaps with advanced economies international status seeking tends to revert growth differentials in favour of the developing country preferences with endogenous status desire generate convergence in growth rates in the presence of structural gaps and convergence in income levels if productivity differences disappear this process is driven by declining terms of trade and faster capital accumulation of the status seeker the model predictions are shown to be consistent with the stylized facts that characterized the growth performance of east asian economies

forecasting losses on a liquidating long term loan portfolio abstract assessing the condition of financial institutions and valuation of loan portfolios in secondary markets require the estimation of exposure to losses on existing portfolios of long term loans data from a major u s financial institution were used to construct a forecasting model with markovian structure and nonstationary transition probabilities the model proved to be effective in representing changes in probability of default that occur as individual loans mature and accurate in forecasting aggregate defaults and losses on a nationwide portfolio of long term loans

running to keep in the same place consumer choice as a game of status if individuals care about their status defined as their rank in the distribution of consumption of one positional good then the consumer s problem is strategic as her utility depends on the consumption choices of others in the symmetric nash equilibrium each individual spends an inefficiently high amount on the status good using techniques from auction theory we analyze the effects of exogenous changes in the distribution of income in a richer society almost all individuals spend more on conspicuous consumption and individual utility is lower at each income level in a more equal society the poor are worse off

energy consumption and economic growth nexus in portugal italy greece spain and turkey an ardl bounds test approach 1965 2009 abstract the paper examines the nexus between primary energy consumption and growth in portugal italy greece spain and turkey pigst with annual time series data from 1965 to 2009 pigst are southern european economies which have experienced several episodes that make them of particular interest to the study of periods of economic expansion and stagnation an ardl bounds test approach is a suitable technique to examine energy growth nexus within the context of countries with both sporadic shocks outliers and permanent shocks structural breaks empirical results suggest bidirectional causality between energy and growth in both the long run and short run supporting the feedback hypothesis the results reveal themselves to be robust to panel framework an energy conservation policy will reduce gdp growth while a saving phenomenon is observed since one additional unit of product requires less than one unit of energy

can t pay or won t pay unemployment negative equity and strategic default this paper uses new data from the psid to quantify the relative importance of negative equity versus ability to pay in driving mortgage defaults between 2009 and 2013 these data allow us to construct household budgets sets that provide better measures of ability to pay changes in ability to pay have large estimated effects job loss has an equivalent effect on the propensity to default as a 35 decline in equity strategic motives are also found to be quantitatively important as we estimate more than 38 of households in default could make their mortgage payments without reducing consumption received september 29 2015 editorial decision june 2 2017 by editor philip strahan authors have furnished an internet appendix which is available on the oxford university pressweb site next to the link to the final published paper online

social norms savings behavior and growth we argue that many goods and decisions are not allocated or made through markets we interpret an agent s status as a ranking device that determines how well he or she fares in the nonmarket sector the existence of a nonmarket sector can endogenously generate a concern for relative position in for example the income distribution so that higher income implies higher status moreover it can naturally yield multiple equilibria it is thus possible to explain differences in growth rates across countries without recourse to differences in underlying preferences technologies or endowments different social organizations lead to different reduced form preferences which lead to different growth rates

no job no money no refi frictions to refinancing in a recession we study how employment documentation requirements and out of pocket closing costs constrain mortgage refinancing these frictions which bind most severely during recessions may significantly inhibit monetary policy pass through to study their effects on refinancing we exploit a federal housing administration policy change that excluded unemployed borrowers from refinancing and increased others out of pocket costs substantially these changes dramatically reduced refinancing rates particularly among the likely unemployed and those facing new out of pocket costs our results imply that unemployed and liquidity constrained borrowers have a high latent demand for refinancing cyclical variation in these factors may therefore affect both the aggregate and distributional consequences of monetary policy

the determinants of default on insured conventional residential mortgage loans this paper presents empirical evidence on the determinants of default for insured residential mortgages a multinomial logit model is specified and estimated for regional aggregates constructed from cross sectional and time series data the results document the independent statistical significance of contemporaneous payment income and loan value ratios and unemployment rates as well as more commonly studied determinants of default such as age and the original loan value ratio

the envy premium in product evaluation consumers are willing to pay a premium for products that elicit their envy the more people compared themselves to a superior other the higher the envy premium was yet the emotion envy and not the upward comparison drove the final effects the envy premium only emerged for a desirable product that the superior other owned iphone when people experienced benign envy benign envy is elicited when the other s superior position is deserved and malicious envy when it is undeserved when people experienced malicious envy the envy premium emerged for a desirable product that the superior other did not own blackberry this shows how benign envy places a premium on keeping up and malicious envy on moving away from superior others

social status entry and predation the case of british shipping cartels 1879 1929 the authors incorporate social status and regional affiliation two variables of central sociological interest into an economic analysis of entry and predation they build on scott morton s 1997 examination of entry and predation in the merchant shipping industry and examine whether the social status of an entrant owner impacts on the predation behavior of the incumbent cartels they find that high social status entrants are significantly less likely 40 to be preyed upon than the low social status entrants they discuss several interpretations of this result subsequent analysis supports the hypothesis that cartel members use social status as an indicator of an entrant s propensity to be a cooperative cartel participant

the role of portuguese electricity generation regimes and industrial production abstract this paper examines how renewables special regime simultaneously interact with conventional sources ordinary regime within the portuguese electricity generation system there is also an appraisal of the relationship between these two regimes and economic activity using the industrial production index first difference var modelling was applied for monthly data for the time span of 2007 m1 to 2012 m10 the appropriateness of the var is proved the relationship between variables develops within a structure of endogeneity i e they generate feedback and may be both explained and explaining variables simultaneously the outcomes show a strong complementarity between the ordinary and special regimes economic activity causes electricity consumption but only the special regime causes economic activity moreover the non renewable component of the special regime does not cause a need for backup from either the ordinary regime or imports contributing to a reduction in energy dependency

risk based capital requirements for mortgage loans abstract we contribute to the debate over the reform of the basel accord by developing risk based capital requirements for mortgage loans held in portfolio by financial intermediaries our approach employs simulation of both economic variables that affect default incidence and conditional loss probability distributions results indicate that appropriate capital charges for credit risk vary substantially with loan characteristics and portfolio geographic diversification hence rules that offer little risk differentiation including the current basel i regime and standardized approach proposed in basel ii result in significant divergence between regulatory and economic capital these results highlight the incentive problems inherent in simplified methods of capital regulation

consumption externalities production externalities and efficient capital accumulation under time non separable preferences the effects of consumption and production externalities on economic performance under time non separable preferences are examined both theoretically and numerically we show that a consumption externality alone has long run distortionary effects if and only if labor is supplied elastically with fixed labor supply it has only transitional distortionary effects production externalities always generate long run distortions irrespective of labor supply the optimal tax structure to correct for the distortions is characterized we compare the implications of this model with those obtained when the consumption externality is contemporaneous while some of the long run effects are robust there are also important qualitative and quantitative differences particularly along transitional paths

diversification and its discontents idiosyncratic and entrepreneurial risk in the quest for social status social status concerns influence investors decisions by driving a wedge in attitudes toward aggregate and idiosyncratic risks i model such concerns by emphasizing the desire to get ahead of the joneses which implies that aversion to idiosyncratic risk is lower than aversion to aggregate risk the model predicts that investors hold concentrated portfolios in equilibrium which helps rationalize the small premium for undiversified entrepreneurial risk in the model status concerns are more important for wealthier households consequently these households own a disproportionate share of risky assets particularly private equity and experience greater volatility of consumption consistent with empirical evidence diversification and risk sharing are fundamental principles of modern finance and macroeconomics however empirical evidence suggests that household portfolios are poorly diversified with many people reporting substantial holdings of a single stock for the wealthiest households large shares in closely held businesses constitute a particularly important source of risk e g heaton and lucas 2000a it is not surprising that entrepreneurs bear substantial undiversified risk since it is important for mitigating moral hazard and or adverse selection problems yet from a standpoint of portfolio theory entrepreneurship does not appear to be well compensated implying that many investors are willing to take poorly rewarded risks despite the availability of superior investment opportunities such as public equity that earns a large risk premium e g moskowitz and vissing j0rgensen 2002 hall and woodward 2007

relative consumption relative wealth and growth abstract in a growth model where individuals care about their social status measured both by consumption and wealth comparisons we show that status comparison in wealth heightens economic growth while status comparison in consumption may affect negatively economic growth

defaults on mortgage obligations and capital requirements for u s savings institutions abstract this paper analyzes credit risk for residential mortgages estimates of the hazard of mortgage default are presented based upon a large sample of conventional loans issued in the late 1970s mean returns are estimated together with variances and covariances for various loan to value ltv ratios and geographic groups these results are then used to analyze capital requirements for institutions holding mortgages we ask for a given bankruptcy risk how should capital requirements vary by ltv and geographical diversification the empirical results indicate that both factors have powerful effects upon bankruptcy risk thus capital requirements should vary substantially along these dimensions

performance drivers of shipping loans an empirical investigation credit risk is a major issue for lenders and borrowers threatening the reliability of global logistics operations enhanced mechanisms of credit risk analysis are needed to safeguard banks and the flow of goods in supply chains little emphasis has been given to the contextual examination of such factors either in terms of market conditions or the particular characteristics of different industries this paper investigates the varying importance of a number of factors connected with the performance of corporate bank loans during times of financial turbulence in the shipping industry little extant literature exists on default risk drivers for loans made to shipping companies for new build vessels or second hand ship purchases a binary logit model is used to examine the criteria for assessing the security of shipping loans issued by banks thirty shipping loans made during the period 2005 2009 are examined results suggest that financial factors non financial factors shipowners experience and employability and market risk indicators are the best criteria for evaluating the performance of shipping loans during turbulent market conditions and periods when financing options are restricted the paper makes a specific contribution to the literature on risk management with regard to credit risk analysis by highlighting shipping specific factors and their importance for risk measurement the results are of interest to banks seeking to accurately assess the credibility of shipping loans shipowners who can identify credit risk factors on which to focus and supply chain participants where unfulfilled bank financing can cause disruptions to their logistics operations

why do people care about social status abstract this paper shows that complementary interaction can induce people to care about social status because it serves as a signal of non observable abilities there is a unique separating equilibrium in which everyone cares about social status in this equilibrium a person s social status perfectly reveals his abilities and everyone matches with a person of like ability the analysis shows that people s instrumental concern for social status has important welfare and policy implications indeed peoples efforts to keep up with the joneses may be welfare enhancing

mortgage default and possession under recourse a competing hazards approach recent studies by ambrose buttimer and capone have stressed the fact that lender and borrower decisions after the initial default on amortgage may significantly affect the amount and timing of recoveries and hence more broadly the value and riskiness of mortgage loan portfolios this study uses microeconomic data from the uk to examine the timing decisions of mortgage lenders and borrowers when mortgages are in default the results suggest that salary and interest rates influence timing decisions more than loan to value ratios do and that lenders and borrowers accelerate the resolution of delinquent mortgages as the economic climate deteriorates