bluuebunny/crossref_metadata_2025 huggingface dataset:
Using Subjective Expectations to Forecast Longevity: Do Survey Respondents Know Something We Don't Know?
Authors: Perozek Maria
Published: August 2019

Furture old-age mortality is notoriously difficult to predict because it requires not only an understanding of the process of senescence, which is influenced by genetic, environmental and behavioral factors, but also a prediction of how these factors will evolve going forward. In this paper, I argue that individuals are uniquely qualified to predict their own mortality based on their own genetic background, as well as environmental and behavioral risk factors that are often known only to the individual. Using expectations data from the 1992 HRS, I construct subjective cohort life tables that are shown to predict the unusual direction of revisions to U.S. life expectancy by gender between 1992 and 2004; that is, the SSA revised up male life expectancy in 2004 and at the same revised down female life expectancy, narrowing the gender gap in longevity by 25 percent over this period. Further, the subjective expectations of women suggest that female life expectancies produced by the Social Security Actuary might still be on the high side, while the subjective life expectancies for men appear to be roughly in line with the 2004 life tables.
Families' Use of Payment Instruments During a Decade of Change in the U.S. Payment System
Authors: Klee Elizabeth
Published: August 2019

In the U.S., the share of payments made "electronically"-- with credit cards, debit cards, and direct payments--grew from 25 percent in 1995 to over 50 percent in 2002 (BIS, 2004). This paper frames this aggregate change in the context of individual behavior. Family level data indicate that the share of families using or holding these instruments also increased over the same period. The personal characteristics that predict use and holdings are relatively constant over time. Furthermore, the results indicate that the aggregate change may be correlated with a greater incidence in "multihoming", or use of multiple payment instruments. In addition, the paper offers evidence that the dimensions over which families multihome differ across payment instruments. The results presented in this paper document a significant change in the payment system, inform payment system policies, and provide evidence of technology adoption behavior more generally.
Incentives and Prices for Motor Vehicles: What Has Been Happening in Recent Years?
Authors: Corrado Carol , Dunn Wendy E. , Otoo Maria Ward
Published: August 2019

We address the construction of price indexes for consumer vehicles using data collected from a national sample of dealerships. The dataset contains highly disaggregate data on actual sales prices and quantities, along with information on customer cash rebates, financing terms, and much more. Using these data, we are able to capture the actual cash and financing incentives taken by consumers, and we demonstrate that their inclusion in measures of consumer vehicle prices is important. We also document other features of retail vehicle markets that interact and overlap with price measurement issues. In particular, we construct vehicle price indexes under different assumptions about what constitutes a "new" product in moving from one model year to the next. For the period that we study (1999 to 2003), a period during which incentives became more widespread and new model introductions rose, our preferred price index drops faster than the CPI for new vehicles.
Forecasting Professional Forecasters
Authors: Ghysels Eric , Wright Jonathan H.
Published: August 2019

Survey of forecasters, containing respondents' predictions of future values of growth, inflation and other key macroeconomic variables, receive a lot of attention in the financial press, from investors, and from policy makers. They are apparently widely perceived to provide useful information about agents' expectations. Nonetheless, these survey forecasts suffer from the crucial disadvantage that they are often quite stale, as they are released only infrequently, such as on a quarterly basis. In this paper, we propose methods for using asset price data to construct daily forecasts of upcoming survey releases, which we can then evaluate. Our methods allow us to estimate what professional forecasters would predict if they were asked to make a forecast each day, making it possible to measure the effects of events and news announcements on expectations. We apply these methods to forecasts for several macroeconomic variables from both the Survey of Professional Forecasters and Consensus Forecasts.
Currents and Undercurrents: Changes in the Distribution of Wealth, 1989-2004
Authors: Kennickell Arthur B.
Published: August 2019

This paper considers changes in the distribution of the wealth of U.S. families over the 1989-2004 period using data from the Survey of Consumer Finances (SCF). Real net worth grew broadly over this period. At the same time, there are indications that wealth became more concentrated, but the result does not hold unambiguously across a set of plausible measures. For example, the Gini coefficient shows significant increases in the concentration of wealth from 1989 to 2004, but the wealth share of the wealthiest one percent of families did not change significantly. Graphical analysis suggests that there was a shift in favor of the top of the distribution, while for the broad middle of the distribution increases were about in proportion to earlier wealth. Within this period, there are other interesting patterns. For example, from 1992 to 2004 the wealth share of the least wealthy half of the population fell significantly to 2.5 percent of total wealth. The data show little in the way of significant distributional shifts since the 2001 survey. The paper also presents some information on underlying factors that may explain a part of the distribution of wealth, including capital gains, saving behavior and income, inheritances, and other factors. There are two special topic sections in the paper. The first presents information on the distributions of wealth of African American and Hispanic families. The second presents information on the use of debt across the distribution of wealth.
Consumers' Use of Debit Cards: Patterns, Preferences, and Price Response
Authors: Borzekowski Ron , Kiser Elizabeth K. , Ahmed Shaista
Published: August 2019

Debit card use at the point of sale has grown dramatically in recent years in the U.S., and now exceeds the number of credit card transactions. However, many questions remain regarding patterns of debit card use, consumer preferences when using debit, and how consumers might respond to explicit pricing of card transactions. Using a new nationally representative consumer survey, this paper describes the current use of debit cards by U.S. consumers, including how demographics affect use. In addition, consumers' stated reasons for using debit cards are used to analyze how consumers substitute between debit and other payment instruments. We also examine the relationship between household financial conditions and payment choice. Finally, we use a key variable on bank-imposed transaction fees to analyze price sensitivity of card use, and find a 12 percent decline in overall use in reaction to a mean 1.8 percent fee charged on certain debit card transactions; we believe this represents the first microeconomic evidence in the United States on price sensitivity for a card payment at the point of sale.
Solving Linear Rational Expectations Models: A Horse Race
Authors: Anderson Gary S.
Published: August 2019

This paper compares the functionality, accuracy, computational efficiency, and practicalities of alternative approaches to solving linear rational expectations models, including the procedures of (Sims, 1996), (Anderson and Moore, 1983), (Binder and Pesaran, 1994), (King and Watson, 1998), (Klein, 1999), and (Uhlig, 1999). While all six prcedures yield similar results for models with a unique stationary solution, the AIM algorithm of (Anderson and Moore, 1983) provides the highest accuracy; furthermore, this procedure exhibits significant gains in computational efficiency for larger-scale models.
Acquisition Targets and Motives in the Banking Industry
Authors: Hannan Timothy H. , Pilloff Steven J.
Published: August 2019

This paper uses a large sample of individual banking organizations, observed from 1996 to 2003, to investigate the characteristics that made them more likely to be acquired. We use a definition of acquisition that we consider preferable to that used in much of the previous literature, and we employ a competing-risk hazard model that reveals important differences that depend on the type of acquirer. Since interstate acquisitions became more numerous during this period, we also investigate differences in the determinants of acquisition between in-state and out-of-state acquirers. The hypothesis that acquisitions serve to transfer resources from less efficient to more efficient uses receives substantial support from our results, as do a number of other relevant hypotheses.
Linear Cointegration of Nonlinear Time Series with an Application to Interest Rate Dynamics
Authors: Jones Barry E. , Nesmith Travis D.
Published: August 2019

We derive a definition of linear cointegration for nonlinear stochastic processes using a martingale representation theorem. The result shows that stationary linear cointegrations can exhibit nonlinear dynamics, in contrast with the normal assumption of linearity. We propose a sequential nonparametric method to test first for cointegration and second for nonlinear dynamics in the cointegrated system. We apply this method to weekly U.S. interest rates constructed using a multirate filter rather than averaging. The Treasury Bill, Commerical Paper and Federal Funds rates are cointegrated, with two cointegrating vectors. Both cointegrations behave nonlinearly. Consequently, linear models will not fully replicate the dynamics of monetary policy transmission.
Alternative Methods of Unit Nonresponse Weighting Adjustments: An Application from the 2003 Survey of Small Business Finances
Authors: Hazelwood Lieu N. , Mach Traci L. , Wolken John D.
Published: August 2019

The 2003 Survey of Small Business Finances (SSBF) screening interview had significant unit nonresponse and therefore some type of nonresponse adjustment was deemed necessary. The approach used in the 2003 survey differed from that used in previous surveys. The current paper examines the impact of this technique on weights, point estimates and variance of the estimates by comparing the approach ultimately implemented for the 2003 survey to alternative approaches. The results using the 2003 SSBF hybrid method are very similar to the traditional weighting class method and the propensity stratification methods. Even though the hybrid technique did in some instances increase the variance of the weights over the traditional weighting class adjustment method, the differences were quite small. In addition the hybrid method decreased the variance for the weights as well as the some of the point estimates.
A Brief History of the 1987 Stock Market Crash With a Discussion of the Federal Reserve Response
Authors: Carlson Mark A.
Published: August 2019

The 1987 stock market crash was a major systemic shock. Not only did the prices of many financial assets tumble, but market functioning was severely impaired. This paper reviews the events surrounding the crash and discusses the response of the Federal Reserve, which responded in a number of ways to support the operation of financial markets, including the provision of liquidity, in a highly visible fashion.
Learning By Investing: Embodied Technology and Business Cycles
Authors: Li Geng
Published: August 2019

In the last decade of the 20th century, the U.S. economy witnessed a persistent and substantial increase in private investment. The boom was sharply reversed in 2001, and a great deal of evidence suggests that the capital stock had become excessive. Standard equilibrium business cycle models have difficulties in predicting the investment boom and overshooting. An embodied technology model is constructed to replicate the pattern of investment boom and collapse. Unlike previous models of embodiment, the present model assumes that new technology increases the productivity of capital of all vintages, but only new capital can facilitate the adoption of the new technology. Further, although agents in this model know about the advent of a new technology, they have imperfect information about its magnitude. Agents learn the magnitude by investing in new capital. I present a sufficient condition for having a persistent investment boom and overshooting. I also solve the model numerically in a dynamic general equilibrium (DGE) setup. The model presented in this paper extends the standard DGE business cycle models in two ways: First, it presents a strong internal propagation mechanism with respect to technology shocks; second, it generates endogenous recessions without invoking technological regress. The model also offers a possible explanation on why consumption growth was strong during the last recession.
Do Households Have Enough Wealth for Retirement?
Authors: Love David A. , Smith Paul A. , McNair Lucy C.
Published: August 2019

Dramatic structural changes in the U.S. pension system, along with the impending wave of retiring baby boomers, have given rise to a broad policy discussion of the adequacy of household retirement wealth. We construct a uniquely comprehensive measure of wealth for households aged 51 and older in 2004 that includes expected wealth from Social Security, defined benefit pensions, life insurance, annuities, welfare payments, and future labor earnings. Abstracting from the uncertainty surrounding asset returns, length of life and medical expenses, we assess the adequacy of wealth using two expected values: an annuitized value of comprehensive wealth and the ratio of comprehensive wealth to the actuarial present value of future poverty lines. We find that most households in these older cohorts can expect to have sufficient total resources to finance adequate consumption throughout retirement, taking as given expected lifetimes and current Social Security benefits. We find a median annuity value of wealth equal to $32,000 per person per year in expected value and a median ratio of comprehensive wealth to poverty-line wealth of 3.56. About 12 percent of households, however, do not have sufficient wealth to finance consumption equal to the poverty line over their expected lifetimes, even after including the value of Social Security and welfare benefits, and an additional 9 percent can expect to be relatively close to the poverty line.
Taylor Rules
Authors: Orphanides Athanasios
Published: August 2019

Taylor rules are simple monetary policy rules that prescribe how a central bank should adjust its interest rate policy instrument in a systematic manner in response to developments in inflation and macroeconomic activity. This paper reviews the development and characteristics of Taylor rules in relation to alternative monetary policy guides and discusses their role for positive and normative monetary policy analysis.
Sources and Uses of Equity Extracted from Homes
Authors: Greenspan Alan , Kennedy James E.
Published: August 2019

In this paper, we present estimates of the disposition of the free cash generated by home equity extraction to finance consumer spending, outlays for home improvements, debt repayment, acquisition of assets, and other uses. We estimate free cash as cash available net of closing costs and repayment of other mortgage debt. We also have extended the quarterly data series for gross equity extraction, presented in our earlier paper, back to 1968.
Incorporating Vintage Differences and Forecasts into Markov Switching Models
Authors: Nalewaik Jeremy J.
Published: August 2019

This paper discusses extensions of standard Markov switching models that allow estimated probabilities to reflect parameter breaks at or close to the end of the sample, too close for standard maximum likelihood techniques to produce precise parameter estimates. The basic technique is a supplementary estimation procedure, bringing additional information to bear to estimate the statistical properties of the end-of-sample observations that behave differently from the rest. Empirical results using real-time data show that these techniques improve the ability of a Markov switching model based on GDP and GDI to recognize the start of the 2001 recession.
Labor Reallocation Over the Business Cycle: New Evidence from Internal Migration
Authors: Molloy Raven Saks , Wozniak Abigail
Published: August 2019

This paper establishes the cyclical properties of a novel measure of worker reallocation: long-distance migration rates within the U.S. This internal migration offers a bird's eye view of worker reallocation in the economy, as long-distance migrants often change jobs or employment status. We examine gross migration patterns during the entire postwar era using historical reports of the Current Population Survey, and supplement this analysis with statistics compiled by the Internal Revenue Service on interstate and intermetropolitan population flows since 1975. We find that internal migration within the U.S. is strongly procyclical, even after accounting for variation in relative local economic conditions. This procyclicality is common across most major demographic and labor force groups, although it is strongest for younger workers. Our findings suggest that cyclical fluctuations in internal migration are driven by economy-wide changes in the net cost to worker reallocation with a major role for the job finding rate of young workers.
Why Do Firms Offer Risky Defined Benefit Pension Plans?
Authors: Love David A. , Smith Paul A. , Wilcox David W.
Published: August 2019

Even risky pension sponsors could offer essentially riskless pension promises by contributing a sufficient level of resources to their pension trust funds and by investing those resources in fixed-income securities designed to deliver their payoffs just as pension obligations are coming due. However, almost no firm has chosen to fund its plan in this manner. We study the optimal funding choice for plan sponsors by developing a simple model of pension financing in which the total compensation offered to workers must clear the labor market. We find that if workers understand the implications of pension risk, they will demand greater compensation for riskier pension promises than for safer ones, all else equal. Indeed, in our model, pension sponsors maximize their value by making their pension promises free of risk. We close by positing some explanations for why no real-world firm follows the prescription of our model.
Transaction Costs and Consumption
Authors: Li Geng
Published: August 2019

The Rational Expectations Permanent Income Hypothesis (RE-PIH) fails to explain several features of consumption behavior documented by previous researchers. First, the marginal propensity to consume (MPC) out of unanticipated income shocks tends to decrease as the size of the shocks becomes larger. Second, the MPC out of small income shocks is well above what the RE-PIH predicts. Third, consumption responds to small anticipated income changes, but not to large ones. This paper argues that these findings can be reconciled within a RE-PIH framework that includes a cash-in-advance constraint. In the model, the representative agent is assumed to be fully rational with perfect information and is able to borrow against future income. The agent can hold cash and interest-bearing assets, but has to pay a fixed transaction cost to transfer wealth between cash and assets. I show that the agent follows an s-S rule with respect to cash holdings in making wealth-transfer decisions. The MPC within the no-transfer band is higher than that out of the band. It can be lower than or exactly equal to 1. The model also predicts that agents smooth consumption in response to news of large future income changes but not to small ones. Furthermore the model sheds light on the demand for liquid assets and the equity premium puzzle.
Averaging Forecasts from VARs with Uncertain Instabilities
Authors: Clark Todd E. , McCracken Michael W.
Published: August 2019

A body of recent work suggests commonly-used VAR models of output, inflation, and interest rates may be prone to instabilities. In the face of such instabilities, a variety of estimation or forecasting methods might be used to improve the accuracy of forecasts from a VAR. These methods include using different approaches to lag selection, different observation windows for estimation, (over-) differencing, intercept correction, stochastically time-varying parameters, break dating, discounted least squares, Bayesian shrinkage, and detrending of inflation and interest rates. Although each individual method could be useful, the uncertainty inherent in any single representation of instability could mean that combining forecasts from the entire range of VAR estimates will further improve forecast accuracy. Focusing on models of U.S. output, prices, and interest rates, this paper examines the effectiveness of combination in improving VAR forecasts made with real-time data. The combinations include simple averages, medians, trimmed means, and a number of weighted combinations, based on: Bates-Granger regressions, factor model estimates, regressions involving forecast quartiles, Bayesian model averaging, and predictive least squares-based weighting. Our goal is to identify those approaches that, in real time, yield the most accurate forecasts of these variables. We use forecasts from simple univariate time series models as benchmarks.
Cracking the Conundrum
Authors: Backus David K. , Wright Jonathan H.
Published: August 2019

From 2004 to 2006, the FOMC raised the target federal funds rate by 4.25 percentage points, yet long-maturity yields and forward rates fell. We consider several possible explanations for this "conundrum." The most likely, in our view, is a fall in the term premium, probably associated with some combination of diminished macroeconomic uncertainty and financial market volatility, more predictable monetary policy, and the state of the business cycle.
Reserve Requirement Systems in OECD Countries
Authors: O'Brien Yueh-Yun C.
Published: August 2019

This paper compares the reserve requirements of OECD countries. Reserve requirements are the minimum percentages or amounts of liabilities that depository institutions are required to keep in cash or as deposits with their central banks. To facilitate monetary policy implementation, twenty-four of the thirty OECD countries impose reserve requirements to influence their banking systemsâ demand for liquidity. These include twelve OECD countries that are also members of the European Economic and Monetary Union (EMU) and twelve non-EMU OECD countries. All EMU countries employ a single reserve requirement system, which is treated as one entity.The reserve requirement system for each of the twelve non-EMU countries is discussed separately. The similarities and differences among the thirteen reserve requirement systems are highlighted. The features of reserve requirements covered include: reservable liabilities, required reserve ratios, reserve computation periods, reserve maintenance periods, types of reserve requirements, calculations of required reserves, eligible assets for satisfying reserve requirements, remuneration on reserve balances, non-compliance penalties, carry-over of reserve balances, and required clearing balances.
Risk and Concentration in Payment and Securities Settlement Systems
Authors: Mills David C. , Nesmith Travis D.
Published: August 2019

Large value payment and securities settlement systems are important components of an economy&#x27;s financial system. Many such systems are operated by central banks and are liquidity intensive. Central banks often provide inexpensive liquidity to facilitate settlement. This leads to a number of policy questions about the provision of such liquidity. To answer these questions, central banks need to understand what factors influence the timing of settlement. This paper offers a model to better understand intraday patterns of settlement and identifies three factors that influence the timing of settlement: the cost of intraday liquidity, a participant&#x27;s exposure to settlement risk, and system design. Incorporating all three factors enables our model to explain a number of stylized facts concerning behavior within the Federal Reserve&#x27;s Fedwire fund and securities systems around a major policy change. In particular, the model captures the different responses of the two systems in both the pattern of settlement and the use of intraday liquidity. The results map out how policy interacts with participants&#x27; incentives to influence the use of intraday liquidity and the resultant credit exposure of a central bank. The model, therefore, can inform decision-making at central banks.
Bank Core Deposits and the Mitigation of Monetary Policy
Authors: Black Lamont K. , Hancock Diana , Passmore Wayne
Published: August 2019

We consider the business strategy of some banks that provide relationship loans (where they have loan origination and monitoring advantages relative to capital markets) with core deposit funding (where they can pass along the benefit of a sticky price on deposits). These "traditional banks" tend to lend out less than the deposits they take in, so they have a "buffer stock" of core deposits. This buffer stock of core deposits can be used to mitigate the full effect of tighter monetary policy on their bank-dependent borrowers. In this manner, the business strategy of "traditional banks" acts as a "core deposit mitigation channel" to provide funds to bank-dependent borrowers when there are monetary shocks. In effect, there is no bank lending channel of monetary policy associated with these traditional banks.In contrast, other banks mainly rely on managed liabilities that are priced at market rates. These banks do not have to shift from insured deposits to managed liabilities in response t
Nominal Mortgage Contracts and the Effects of Inflation on Portfolio Allocation
Authors: Nichols Joseph B.
Published: August 2019

Households who wish to extract home equity through refinancing their mortgage face a hidden transaction cost. The real value of the fixed nominal mortgage payment declines over time with inflation. The change in the real value of the mortgage payments from taking on a new mortgage is positive and an increasing function of inflation; higher inflation thus discourages households from re-balancing their portfolio as frequently as they would otherwise. The life cycle model developed in this paper demonstrates how the share of total wealth held in housing is sensitive to the rate of inflation, even when perfectly anticipated. Households hold larger positions in home equity earlier in the life cycle and smaller positions later in the life cycle as the rate of inflation increases.
Challenges in Macro-Finance Modeling
Authors: Kim Don H.
Published: August 2019

This paper discusses various challenges in the specification and implementation of "macro-finance" models in which macroeconomic variables and term structure variables are modeled together in a no-arbitrage framework. I classify macro-finance models into pure latent-factor models ("internal basis models") and models which have observed macroeconomic variables as state variables ("external basis models"), and examine the underlying assumptions behind these models. Particular attention is paid to the issue of unspanned short-run fluctuations in macro variables and their potentially adverse effect on the specification of external basis models. I also discuss the challenge of addressing features like structural breaks and time-varying inflation uncertainty. Empirical difficulties in the estimation and evaluation of macro-finance models are also discussed in detail.
Alternatives for Distressed Banks and the Panics of the Great Depression
Authors: Carlson Mark A.
Published: August 2019

Several studies have explored whether the banking panics of the Great Depression caused some institutions to fail that might otherwise have survived. This paper adopts a different approach and investigates whether the panics resulted in the failure and liquidation of banks that might otherwise have been able to pursue a less disruptive resolution strategies such as merging with another institution or suspending operations and recapitalizing. Using data on individual state-chartered banks, I find that many of the banks that failed during the panics appear to have been at least as financially sound as banks that were able to use alternative resolution strategies. This result supports the idea that the disruptions caused by the banking panics may have exacerbated the economic downturn.
The "Growing Pains" of TIPS Issuance
Authors: Roush Jennifer E.
Published: August 2019

This paper provides updated calculations of the relative cost to the U.S. Treasury of previously issued TIPS by comparing the payment stream on each security to that of hypothetical nominal counterpart. While the costs of the program (so measured) are large, totaling $5 to $8 billion to date, I show that they owe largely to market illiquidity in the early years of the program. Indeed, absent these market growing pains, the program would have yielded a substantial net savings to the government as investors were apparently willing to pay a substantial premium to insure against inflation risk.
The Effect of Satellite Entry on Product Quality for Cable Television
Authors: Chu Chenghuan Sean
Published: August 2019

In vertically differentiated markets, the effects of firm entry are contingent upon whether incumbent firms can respond to entry by adjusting product quality in addition to simply lowering prices. Using market-level data, I estimate a structural model of supply and demand for subscription television that takes into account the endogeneity of quality choice. Using counterfactual analysis, I decompose the effect of satellite entry on existing cable into two components: the conventional price response and the effect of endogenous quality adjustments (measured by changes in programming content). Consistent with the empirical observation that cable prices rose during the 1990s and early 2000s "in spite of" increasing competition, I find that raising both price and quality for the most comprehensive subscription package--i.e., competing "head-to-head"--is the rational response to entry by cable systems in markets with relatively homogeneous consumer types. Elsewhere, incumbents respond less
Corporate Hedging, Investment and Value
Authors: Berrospide Jose M. , Purnanandam Amiyatosh , Rajan Uday
Published: August 2019

We consider the effect of hedging with foreign currency derivatives on Brazilian firms in the period 1997 through 2004, a period that includes the Brazilian currency crisis of 1999. We find that, derivative users have valuations that are 6.7-7.8% higher than non-user firms. Hedging with currency derivatives allows firms to sustain larger capital investments, and also removes the sensitivity of investment to internally generated funds. Thus, it mitigates the underinvestment friction of Froot, Scharfstein, and Stein (1993), at a time when capital in the economy as a whole is scarce. We further show that hedging increases the foreign currency debt capacity of a firm, and that foreign debt is a cheaper source of capital than domestic debt during our period of study.
A New Look at the Wealth Adequacy of Older U.S. Households
Authors: Love David A. , Smith Paul A. , McNair Lucy C.
Published: August 2019

We construct two measures of the current wealth adequacy of older U.S. households using the 1998--2006 waves of the Health and Retirement Study (HRS). The first is the ratio of "comprehensive wealth"--defined as net worth plus the expected value of future income streams--to the wealth that would be needed to generate expected poverty-line income in future years. By this measure, we find that the median older U.S. household is reasonably well situated, with a "poverty ratio" of about 3.9 in 2006. However, we find that about 18 percent of households have less wealth than would be needed to generate 150 percent of poverty-line income over their expected future lifetimes. Our second measure is the ratio of the annuitized value of comprehensive resources to pre-retirement earnings. This measure identifies a median "replacement rate" of about 105 percent, with about 13 percent of households experiencing replacement rates of less than 50 percent. Comparing the leading edge of the baby boomers in 2006 to households of the same age in 1998, we find that the baby boomers show slightly less wealth, in real terms, than their elders did, and single boomers show a bit higher incidence of "inadequacy" than did their elders. Nonetheless, the median single boomer appears to have adequate resources. Moreover, we find a rising age profile of annualized wealth, even within households over time and after controlling for other factors, suggesting that older households are not spending their wealth as quickly as their survival probabilities are falling.
Are Long-Run Inflation Expectations Anchored More Firmly in the Euro Area than in the United States?
Authors: Beechey Meredith J. , Johannsen Benjamin K. , Levin Andrew
Published: August 2019

This paper compares the recent evolution of long-run inflation expectations in the Euro area and the United States, using evidence from financial markets and surveys of professional forecasters. Survey data indicate that long-run inflation expectations are reasonably well-anchored in both economies, but also reveal substantially greater dispersion across forecasters' long-horizon projections of U.S. inflation. Daily data on inflation swaps and nominal-indexed bond spreads—which gauge compensation for expected inflation and inflation risk—also suggest that long-run inflation expectations are more firmly anchored in the Euro area than in the United States. In particular, surprises in macroeconomic data releases have significant effects on U.S. forward inflation compensation, even at long horizons, whereas macroeconomic news only influences Euro area inflation compensation at short horizons.
The Effect of Taxation on Lifecycle Labor Supply: Results from a Quasi-Experiment
Authors: Dokko Jane K.
Published: August 2019

In predicting the magnitude of the labor supply response to taxation, the standard lifecycle labor supply model distinguishes between unanticipated and anticipated changes in the after-tax return to working. Exploiting age-eligibility rules for claiming a dependent on a tax return facilitates a comparison of the labor supply outcomes of households who are equivalent but for the tax schedule they face. I find that the quasi-random assignment to a tax schedule without an age-eligible dependent corresponds to a decrease in mothers&amp;#x27; labor supply by about 40 hours per year and to no discernible effect for fathers. While having an age-ineligible dependent results in a 0.5 percentage point, or 0.3%, average decrease in a household&amp;#x27;s net-of-tax rate, further analysis of average tax rates suggests that the variation in marginal tax rates does not fully explain mothers&amp;#x27; labor supply responses. This finding militates against interpreting this large response as an intertemporal elasticity and subsequently presents a puzzle for the lifecycle labor supply model.
Subprime Mortgages: What, Where, and to Whom?
Authors: Pence Karen M. , Mayer Christopher J.
Published: August 2019

We explore the types of data used to characterize risky subprime lending and consider the geographic dispersion of subprime lending. First, we describe the strengths and weaknesses of three different datasets on subprime mortgages using information from LoanPerformance, HUD, and HMDA. These datasets embody different definitions of subprime mortgages. We show that estimates of the number of subprime originations are somewhat sensitive to which types of mortgages are categorized as subprime. Second, we describe what parts of the country and what sorts of neighborhoods had more subprime originations in 2005, and how these patterns differed for purchase and refinance mortgages. Subprime originations appear to be heavily concentrated in fast-growing parts of the country with considerable new construction, such as Florida, California, Nevada, and the Washington DC area. These locations saw house prices rise at faster-than-average rates relative to their own history and relative to the rest o
Tips from TIPS: The Informational Content of Treasury Inflation-Protected Security Prices
Authors: D'Amico Stefania , Kim Don H. , Wei Min
Published: August 2019

We examine the informational content of TIPS yields from the viewpoint of a general 3-factor no-arbitrage term structure model of inflation and interest rates. Our empirical results indicate that TIPS yields contained a 'liquidity premium' that was until recently quite large (~1%). Key features of this premium are difficult to account for in a rational pricing framework, suggesting that TIPS may not have been priced efficiently in its early years. Besides the liquidity premium, a time-varying inflation risk premium complicates the interpretation of the TIPS breakeven inflation rate (the difference between the nominal and TIPS yields). Nonetheless, high-frequency variation in the TIPS breakeven rates is similar to the variation in inflation expectations implied by the model, lending support to the view that TIPS breakeven inflation rates are a useful proxy for inflation expectations.
Zero Bound, Option-Implied PDFs, and Term Structure Models
Authors: Kim Don H.
Published: August 2019

This paper points out that several known ways of modeling non-negative nominal interest rates lead to different implications for the risk-neutral distribution of the short rate that can be checked with options data. In particular, Black's boundary models ("interest rates as options") imply a probability density function (pdf) that contains a Dirac delta function and a cumulative distribution function (cdf) that is nonzero at the zero boundary, while models like the CIR and positive-definite quadratic-Gaussian (QG) models have a zero cdf at the boundary. Eurodollar futures options data are found to favor Black's boundary models: the CIR/QG models, even multifactor versions, have difficulty capturing option prices accurately not only in low interest rate environments but also in higher interest rate environments, and data in early 2008 provide an almost tangible signature of the Dirac delta function in Black's boundary pdf models. Options data also contradict the prediction of well-known models whose cdf is zero at the zero boundary, namely that the risk-neutral pdf is always positively skewed.
Insider Rates vs. Outsider Rates in Lending
Authors: Black Lamont K.
Published: August 2019

The presence of private information about a firm can affect the competition among potential lenders. In the Sharpe (1990) model of information asymmetry among lenders (with the von Thadden (2004) correction), an uninformed outside bank faces a winner's curse when competing with an informed inside bank. This paper examines the model's prediction for observed interest rates at an inside vs. outside bank. Although the outside bank wins more bad firms than the inside bank, the winner's curse also causes the outside rate conditional on firm type to be lower in expectation than the inside rate conditional on firm type. I show analytically that the expected interest rate at the outsider can be either higher or lower than the expected interest rate at the insider, depending on the net of these two effects. Under the assumption that the banks split the firms in a tie bid, a numerical solution shows that the outside expected interest rate is higher than the inside expected interest rate for high quality borrower pools, but the outside expected interest rate is lower for low quality borrower pools.
Estimating the Common Trend Rate of Inflation for Consumer Prices and Consumer Prices Excluding Food and Energy Prices
Authors: Kiley Michael T.
Published: August 2019

I examine the common trend in inflation for consumer prices and consumer prices excluding prices of food and energy. Both the personal consumption expenditure (PCE) indexes and the consumer price indexes (CPI) are examined. The statistical model employed is a bivariate integrated moving average process; this model extends a univariate model that fits the data on inflation very well. The bivariate model forecasts as well as the univariate models. The results suggest that the relationship between overall consumer prices, consumer prices excluding the prices of food and energy, and the common trend has changed significantly over time. In the 1970s and early 1980s, movements in overall prices and prices excluding food and energy prices both contained information about the trend; in recent data, the trend is best gauged by focusing solely on prices excluding food and energy prices.
The High-Frequency Impact of News on Long-Term Yields and Forward Rates: Is It Real?
Authors: Beechey Meredith J. , Wright Jonathan H.
Published: August 2019

This paper uses high-frequency intradaily data to estimate the effects of macroeconomic news announcements on yields and forward rates on nominal and index-linked bonds, and on inflation compensation. To our knowledge, it is the first study in the macro announcements literature to use intradaily real yield data, which allow us to parse the effects of news announcements on real rates and inflation compensation far more precisely than we can using daily data. Long-term nominal yields and forward rates are very sensitive to macroeconomic news announcements. We find that inflation compensation is sensitive to announcements about price indices and monetary policy. However, for news announcements about real economic activity, such as nonfarm payrolls, the vast majority of the sensitivity is concentrated in real rates. Accordingly, we conclude that most of the sizeable impact of news about real economic activity on the nominal term structure of interest rates represents changes in expected future real short-term interest rates and/or real risk premia rather than changes in expected future inflation and/or inflation risk premia. This suggests that explanations for the puzzling sensitivity of long-term nominal rates need to look beyond just inflation expectations and toward models that encompass uncertainty about the long-run real rate of interest.
Effects of Liquidity on the Nondefault Component of Corporate Yield Spreads: Evidence from Intraday Transactions Data
Authors: Han Song , Zhou Hao
Published: August 2019

We estimate the nondefault component of corporate bond yield spreads and examine its relationship with bond liquidity. We measure bond liquidity using intraday transactions data and estimate the default component using the term structure of credit default swaps spreads. With swap rate as the risk free rate, the estimated nondefault component is generally moderate but statistically significant for AA-, A-, and BBB-rated bonds and increasing in this order. With Treasury rate as the risk free rate, the estimated nondefault component is the largest in basis points for BBB-rated bonds but, as a fraction of yield spreads, it is the largest for AAA-rated bonds. We find a positive and significant relationship between the nondefault component and illiquidity for investment-grade bonds but no significant relationship for speculative-grade bonds. In addition, the nondefault component comoves with macroeconomic conditions--negatively with the Treasury term structure and positively with the stock market implied volatility.
The Use of Alternative Employment Arrangements by Small Businesses: Evidence from the 2003 Survey of Small Business Finances
Authors: Mach Traci L. , Holmes John A.
Published: August 2019

According to the CPS, employees in alternative work arrangements make up over 10 percent of U.S. workers. Because of the pervasiveness of these types of arrangements, it is important to understand why firms are choosing to use them. Using data from the 2003 Survey of Small Business Finances, we model the firm&#x27;s decision to use alternative employment arrangements using a large representative sample of small businesses in the U.S. In general, our results are similar to previous establishment-level studies that have examined the use of these types of employment arrangements. However, many of these previous studies have been narrow in scope because of data limitations. We find evidence to support each of the following hypotheses: 1) firms may be using alternative employment arrangements (AEA) in an attempt to generate cost savings by substituting standard employees with AEA employees when internal wages and benefit costs are high; 2) firms may be using AEA to meet irregular product demand constraints; and 3) firms may be using AEA to take advantage of economies of scale for certain tasks or services. Additionally, we present some additional findings that add to the relatively limited establishment level literature on alternative employment arrangements.
The Connection Between House Price Appreciation and Property Tax Revenues
Authors: Lutz Byron F.
Published: August 2019

This paper explores two aspects of the connection between property tax revenues and house prices. First, I estimate the elasticity of property tax revenues with respect to house prices. This elasticity does not necessarily equal one as governments may adjust effective tax rates to offset changes in property values. Second, I examine the timing of the relationship. Institutional features of the property tax make it unlikely that changes in house prices will immediately influence tax revenues. The results suggest that the elasticity eventually equals 0.4 and that it takes three years for house price changes to impact tax revenues.
The Effect of Capital Gains Taxation on Home Sales: Evidence from the Taxpayer Relief Act of 1997
Authors: Shan Hui
Published: August 2019

The Taxpayer Relief Act of 1997 (TRA97) significantly changed the tax treatment of housing capital gains in the United States. Before 1997, homeowners were subject to capital gains taxation when they sold their houses unless they purchased replacement homes of equal or greater value. Since 1997, homeowners can exclude $500,000 of capital gains when they sell their houses. Such drastic changes provide a good opportunity to study the lock-in effect of capital gains taxation on home sales. Using ZIP-code level housing price indexes and sales on single-family houses data from 1982 to 2006 in 16 affluent towns within the Boston metropolitan area, this paper finds that TRA97 reversed the lock-in effect of capital gains taxes on houses with low and moderate capital gains. However, TRA97 may have generated an unintended lock-in effect on houses with capital gains over the maximum exclusion amount. In addition, this paper exploits legislative changes in capital gains tax rate to estimate the tax elasticity of home sales during the post-TRA97 period.
Does Credit Supply Affect Small-Firm Finance?
Authors: Rice Tara N. , Strahan Philip E.
Published: August 2019

States were granted authority to limit interstate branching following passage of Federal legislation in 1994, relaxing restrictions on geographical expansion by banks. We show that differences in state's branching restrictions affect credit supply. In states more open to branching, small firms borrow at interest rates 25 to 45 basis points lower than firms operating in less open states. Firms in open states also are more likely to borrow from banks. Despite this evidence that interstate branch openness expands credit supply, we find no effect of variation in state restrictions on branching on small-firm borrowing or other indicators of credit constraints.