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on Urban and Real Estate Economics |
| By: | Kristopher S. Gerardi; Paul S. Willen |
| Abstract: | This paper analyzes the impact of the subprime crisis on urban neighborhoods in Massachusetts. The topic is explored using a dataset that matches race and income information from HMDA with property-level, transaction data from Massachusetts registry of deeds offices. With these data, we show that much of the subprime lending in the state was concentrated in urban neighborhoods and that minority homeownerships created with subprime mortgages have proven exceptionally unstable in the face of rapid price declines. The evidence from Massachusetts suggests that subprime lending did not, as is commonly believed, lead to a substantial increase in homeownership by minorities, but instead generated turnover in properties owned by minority residents. Furthermore, we argue that the particularly dire foreclosure situation in urban neighborhoods actually makes it somewhat easier for policymakers to provide remedies. |
| Keywords: | Subprime mortgage ; Mortgage loans - Massachusetts |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbpp:08-6&r=ure |
| By: | Shane M. Sherlund |
| Abstract: | This paper models the historical default and prepayment behavior for subprime mortgages using data on securitized mortgages originated from 2000 to 2007. I find that more recently originated subprime loans are more likely to default, well ahead of their first mortgage rate resets, and less likely to prepay (i.e., refinance). This rise in mortgage defaults stems largely from unprecedented declines in house prices, along with slack underwriting and tight credit market conditions. I estimate a competing hazards model to quantify the effects of (1) house price appreciation, (2) underwriting standards, (3) mortgage rate resets, and (4) household cash flow shocks, such as job loss and oil price increases, on the likelihood of borrowers with subprime mortgages to default or prepay. Ultimately, I find that borrower leverage is one of the most important factors explaining both default and prepayment for borrowers with subprime mortgages. Then, using several different assumptions about the future path of house prices, I simulate potential trajectories for subprime mortgage defaults between 2008 and 2010. Further, I explore the short-term sensitivities of default and prepayment to house prices and various mortgage characteristics. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2008-63&r=ure |
| By: | Richard J. Rosen |
| Abstract: | This paper examines the relationship between real estate prices during the home price boom from the late 1990s into 2005 and competition among mortgage lenders. The mortgage lending business, especially with the rise of the originate-to-distribute model, had competitors with very different non- mortgage activities and regulation. I show that in local markets, when banks increased their share of mortgages relative to lenders such as mortgage brokers, home prices started increasing at a faster pace. Home prices also affected market shares, but primarily through changes at the national level. When national home prices increased at a faster pace, there was a shift from banks to mortgage brokers in local markets. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-08-16&r=ure |
| By: | Patrick Bajari; Chenghuan Sean Chu; Minjung Park |
| Abstract: | The turmoil that started with increased defaults in the subprime mortgage market has generated instability in the financial system around the world. To better understand the root causes of this financial instability, we quantify the relative importance of various drivers behind subprime borrowers' decision to default. In our econometric model, we allow borrowers to default either because doing so increases their lifetime wealth or because of short-term budget constraints, treating the decision as the outcome of a bivariate probit model with partial observability. We estimate our model using detailed loan-level data from LoanPerformance and the Case-Shiller home price index. According to our results, one main driver of default is the nationwide decrease in home prices. The decline in home prices caused many borrowers' outstanding mortgage liability to exceed their home value, and for these borrowers default can increase their wealth. Another important driver is deteriorating loan quality: The increase of borrowers with poor credit and high payment to income ratios elevates default rates in the subprime market. We discuss policy implications of our results. Our findings point to flaws in the securitization process that led to the current wave of defaults. Also, we use our model to evaluate alternative policies aimed at reducing the rate of default. |
| JEL: | G18 G2 G33 R51 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14625&r=ure |
| By: | Varma, Sumati; Gill, H.S |
| Abstract: | The defining characteristic of the modern global city today is its excluding character. The city today consists to a large extent of poor people who have been excluded in the process of urban planning and whose right to be a part of the urban process has been largely ignored. Urban development that is geared to the needs of global capital displaces or excludes poor segments of the population and leads to the social and spatial segmentation of the mega-city into citadels and ghettos. This has created a growing disparity between “haves” and “have-nots”, both between and within nations. Globalisation proceeds selectively, including and excluding segments of economies and societies in and out of the networks of information, wealth and power that characterise the new dominant system. In the given perspective this paper attempts: · To analyse the effects of globalisation on urban growth and development in India. · To examine the policy and strategy of urban development during the past two and a half decades, including the organisational structure for managing urban sector schemes and the supporting financing system. · To suggest an integrated strategy for the development of inclusive cities. · To develop a framework of an inclusive, modern and environment friendly city. |
| Keywords: | Inclusive cities;globalisation;Urban planning |
| JEL: | O1 O18 R00 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:12581&r=ure |
| By: | Andreea Cosnita-Langlais |
| Abstract: | This paper aims to further advance the study of horizontal mergers by critically reviewing the theory on spatial models that may be used for the analysis of horizontal market concentration. We examine the incentives conveyed by locations for undertaking merger and merger-related strategies, as well as the impact of merger on strategic location choices. Thereby this paper highlights the two-way relationship between market concentration behavior and firm location. |
| Keywords: | geographic and product space, strategic location, horizontal market concentration, merger control |
| JEL: | D43 L41 R32 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2008-42&r=ure |
| By: | Neil Bhutta |
| Abstract: | I identify and quantify the mortgage supply effect of the Community Reinvestment Act (CRA), a law mandating that banks help provide credit in lower-income neighborhoods, by exploiting a discontinuity in the selection rule determining which census tracts CRA targets. Using a comprehensive source of micro data on MSA mortgage applications, I find that CRA affects bank lending primarily in large MSA's, where banks are most scrutinized. The analysis indicates that CRA's effect on bank originations was about 4% between 1994 and 1996, and expanded to 8% in 1997-2002, consistent with the timing of a reform strengthening CRA. I provide some evidence that marginal loans go to atypical, potentially higher-risk borrowers. The results also indicate net "crowd-in": lending to targeted tracts by unregulated institutions rises in post-reform years, in particular to those areas that have had relatively low home purchase volume in the recent past, consistent with a model of information externalities in credit markets. Finally, using changes in tract eligibility status following the release of Census 2000 data as an additional source of variation, I find that CRA increased bank lending to newly targeted tracts in large MSA's by 4-5% in 2004 and 2005. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2008-61&r=ure |
| By: | Marco Bassetto |
| Abstract: | Across different layers of the U.S. government there are surprisingly large differences in institutional provisions that impose fiscal discipline, such as constitutionally mandated deficit or debt limits, or specific tax bases. In this paper we develop a framework that can be used to quantitatively assess their costs and benefits. The model features both endogenous and exogenous mobility across jurisdictions, so we can evaluate whether the different degree of mobility at the local vs. national level can justify different institutional restrictions. In preliminary results, we show that pure land taxes have very beneficial incentive effects, but can only raise limited amounts of revenues. In contrast, under exogenous mobility, income taxes lead unambiguously to insufficient incentives to invest in public capital, unless the fiscal constraints explicitly favor such investment. This conclusion seems to hold even with the introduction of endogenous mobility, since adverse congestion effects from inefficient migration offset the beneficial impact of (partial) capitalization of future taxes into land prices. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-08-21&r=ure |
| By: | Neri, Marcelo |
| Abstract: | The recently released "Educational PAC" attempts to place basic education at the center of the social debate. We have subsidized this debate, offering a diagnosis of how different education levels can impact individuals' lives through broad and easily interpreted indicators. Initially, we analyze how much each educational level reaches the poorest population. For example, how are those in the bottom strata of income distribution benefited by childcare centers, private secondary education, public university or adult education. The next step is to quantify the return of educational actions, such as their effects on employability and an individual's wages, and even health as perceived by the individual, be that individual poor, middle class or elite. The next part of the research presents evidence of how the main characters in education, aka mothers, fathers and children, regard education. The site available with the research presents a broad, user-friendly database, which will allow interested parties to answer their own questions relative to why people do not attend school, the time spent in the educational system and returns to education, which can all be cross-sectioned with a wide array of socio-demographic attributes (gender, income, etc.) and school characteristics (is it public, are school meals offered, etc.) to find answers to: why do young adults of a certain age not attend school? Why do they miss classes? How long is the school day? Aside from the whys and hows of teaching, the research calculates the amount of time spent in school, resulting from a combination between absence rates, evasion raters and length of the school day. The study presents ranks of indicators referring to objective and subjective aspects of education, such as the discussion of the advantages and care in establishing performance based incentives that aim at guiding the states in the race for better educational indicators. |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:fgv:epgewp:684&r=ure |
| By: | Aloysius Gunadi, Brata |
| Abstract: | This study has been focusing on the vulnerability of street vendors in Java since the time when Java was hit severely by the economic crisis in 1997/1998, which also had reversed the trend of economic formalization in Indonesia. For this aim, a survey was conducted during the month of February 2007 in Yogyakarta and Sleman districts in Yogyakarta Special Province. The survey covered 122 street vendors in several streets in both areas. These samples consist of three groups of street vendors: food seller, non-food seller, and services providers. Based on this survey, vulnerability index of street vendors is measured. The study found that most of street vendors in Yogyakarta experience vulnerability at the medium level. In general, vulnerability of food seller vendors is higher than other vendors. Vulnerability also varies across the locations of vending. |
| Keywords: | informal sector; street vendor; vulnerability; Indonesia |
| JEL: | O17 R0 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:12541&r=ure |
| By: | Clayton Featherstone; Muriel Niederle |
| Abstract: | Criteria for evaluating school choice mechanisms are first, whether truth-telling is sometimes punished and second, how efficient the match is. With common knowledge preferences, Deferred Acceptance (DA) dominates the Boston mechanism by the first criterion and is ambiguously ranked by the second. Our laboratory experiments confirm this. A new ex ante perspective, where preferences are private information, introduces new efficiency costs borne by strategy-proof mechanisms, like DA. In a symmetric environment, truth-telling can be an equilibrium under Boston, and Boston can first-order stochastically dominate DA in terms of efficiency, both in theory and in the laboratory. |
| JEL: | C78 C9 I2 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14618&r=ure |
| By: | Tatom, John |
| Abstract: | The Federal Reserve (Fed) and the U.S. Treasury have taken unprecedented steps to stem the financial crisis that began in August 2007 as part of the extended foreclosure crisis. In the most recent episode in September 2008, seven financial institutions either failed or were merged with stronger firms, sparking public concerns for their assets and for their own financial institutions. This has led to several new institutional arrangements of questionable value, foremost among them, the Bush Administration’s $700 billion bailout fund for illiquid mortgage-related assets on the books of financial institutions. All of these events had been anticipated for months, but the surprise was the bunching of these failures over such a short interval. The other noteworthy feature of these developments is the speed and completeness with which the private sector moved in to acquire the assets and operations of these companies with little or no regulatory or taxpayer cost. There are exceptions, but even in those cases, the costs were minimized and the firms involved hardly missed a beat, except for their new owners. This paper reviews arguments that the failure of Lehman precipitated recent developments and also whether financial deregulation was responsible. A Lehman-related development was the run on money market mutual funds and policy responses to it by both the Fed and Treasury. These are critically reviewed here as well. Finally, it reviews how rapidly and effectively the Fed responded to the September issues, something that Treasury bailouts cannot do, and that represents a major turning point in the Fed response to the foreclosure/financial crisis. |
| Keywords: | central banking policy; credit approach to monetary policy; sterilization; systemic risk |
| JEL: | E58 E52 E44 |
| Date: | 2008–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:12502&r=ure |
| By: | Tatom, John |
| Abstract: | Since August 2007 the Board of Governors of the Federal Reserve System (Fed) has approached near panic in their adoption of multiple and inconsistent traditional policy measures and, since December 2007, they have multiplied these efforts by adopting major new policy tools, some of which may go well beyond their congressional mandate. These actions have been motivated, in the first instance, by an emerging mortgage foreclosure crisis that began in late-2006 and that the Fed first recognized in May 2007, in the second instance by a credit crisis that emerged in August in Europe and quickly moved on shore. This article summarizes and explains the Fed actions from August 2007 through March 2008, distinguishing its normal policy actions from a multitude of new facilities that it has created for policy response to illiquidity (or perhaps insolvency) in various corners of private credit markets. What stands out is that the Fed has aimed to target credit to various specific areas of the private financial market and as stridently aimed to insulate overall Fed credit, bank reserves, the federal funds rate or monetary aggregates from these novel responses. This campaign has involved creating numerous new facilities for the private sector and financing them largely by liquidating government securities held by the Fed. In the process, the Fed has transformed itself largely into a lender to the private sector rather than the government. It has violated the fundamental premise of central banking in a crisis to lend liberally at a premium and largely by lending against safe government securities and letting the marketplace direct new credit to solvent but illiquid institutions. It remains to be seen whether such an approach can stimulate a rebound on private credit markets and economic activity. |
| Keywords: | Foreclosure Crisis; Federal Reserve Policy; Sterilization; Central Banking |
| JEL: | E58 E52 |
| Date: | 2008–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:12501&r=ure |
| By: | António Afonso (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Ricardo M. Sousa (University of Minho, Department of Economics and Economic Policies Research Unit (NIPE), Campus of Gualtar, 4710-057 - Braga, Portugal; London School of Economics, Department of Economics and Financial Markets Group, Houghton Street, London WC2 2AE, United Kingdom.) |
| Abstract: | This paper investigates the link between fiscal policy shocks and movements in asset markets using a Fully Simultaneous System approach in a Bayesian framework. Building on the works of Blanchard and Perotti (2002), Leeper and Zha (2003), and Sims and Zha (1999, 2006), the empirical evidence for the U.S., the U.K., Germany, and Italy shows that it is important to explicitly consider the government debt dynamics when assessing the macroeconomic effects of fiscal policy and its impact on asset markets. In addition, the results from a VAR counter-factual exercise suggest that: (i) fiscal policy shocks play a minor role in the asset markets of the U.S. and Germany; (ii) they substantially increase the variability of housing and stock prices in the U.K.; and (iii) government revenue shocks have apparently contributed to an increase of volatility in Italy. JEL Classification: C32, E62, G10, H62. |
| Keywords: | Bayesian Structural VAR, fiscal policy, housing prices, stock prices. |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20090990&r=ure |
| By: | Ethan Cohen-Cole; Burcu Duygan-Bump |
| Abstract: | Using a large sample of individual credit information provided by a US credit bureau, this paper investigates the empirical relevance of stigma and information sharing on household bankruptcy and its trend. Many observers of bankruptcy patterns have conjectured that there exists an increased willingness to default that reflects a diminution of social stigma. In this paper, we use a new methodology to disentangle stigma and social learning—two acknowledgedly important social factors affecting default. Although our results indicate a large and important role for stigma, changes in information costs seem to be the more relevant factor in explaining the observed bankruptcy trends. Furthermore, we show that this aggregate trend disguises enormous heterogeneity. While social factors appear quite important among the very poor and less educated, stigma seems to have increased and information costs to have decreased among these very groups. On the contrary, we show that it is primarily among the relatively rich and well educated that stigma has declined. These compositional findings further suggest that the overall increase in the bankruptcy rates cannot be explained by a decrease in social stigma. We argue that the secular increase in bankruptcy is more likely attributable to decreased information costs rather than to changes in social stigma. |
| Keywords: | Bankruptcy |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbqu:qau08-6&r=ure |
| By: | Kenneth Y. Chay; Jonathan Guryan; Bhashkar Mazumder |
| Abstract: | A large literature documents the significant gap in average test scores between blacks and whites, while a related literature finds a substantial narrowing of the gap during the 1980’s, and a stagnation in convergence during the 1990’s. We use two data sources the Long Term Trends NAEP and AFQT scores for the universe of applicants to the U.S. military between 1976 and 1991 to show that most of the racial convergence in the 1980’s is explained by relative improvements across successive cohorts of blacks born between 1963 and the early 1970’s and not by a secular narrowing in the gap over time. Furthermore, these across-cohort test score gains occurred almost exclusively among blacks in the South. We then examine the potential causes of these large composition effects in the test score gap and their significant variation across U.S. states. We demonstrate that the timing of the cohort-based AFQT convergence closely tracks the convergence in measures of black and white infant health for those cohorts. For example, the cohort- specific AFQT gaps (adjusted for age and year effects and selection into test taking) and the racial gaps in post- neonatal mortality rates deaths between one month and one year of birth exhibit very similar patterns across states and birth cohorts. We show that the black-white convergence in AFQT scores appears to have been more closely linked with post- neonatal mortality rates than with earlier health measures such as neonatal mortality (deaths within one month of birth) and low birthweight. We also find little evidence that other potential confounders (e.g., schooling desegregation, family background) can explain these patterns in AFQT scores. Investments in health at very early ages after birth appear to have large, long-term effects on human capital accumulation. We also discuss preliminary evidence that the staggered timing of hospital integration across the South is consistent with the patterns of gains in black test scores 17 to 18 years after birth more so than other hypotheses for progress in black infant health (e.g., Food Stamps, AFDC, Medicaid). |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-08-20&r=ure |
| By: | Bruns, Christian; Himmler, Oliver |
| Abstract: | Whenever citizens want their elected officials to employ funds efficiently, they are in need of information in order to establish accountability. We develop an agency model with imperfect monitoring where newspapers provide voters with this information. The model predicts that an informed electorate is more likely to hold an incumbent accountable. Using panel data on Norwegian municipalities we show that increases in local newspaper circulation are associated with higher levels of local government efficiency as measured by an index introduced by the Norwegian authorities. |
| Keywords: | media; newspapers; local government; public sector efficiency; Norway |
| JEL: | H7 D72 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:12582&r=ure |
| By: | Jakobsson, Niklas (Department of Economics, School of Business, Economics and Law, Göteborg University); Nordblom, Katarina (Department of Economics, School of Business, Economics and Law, Göteborg University) |
| Abstract: | This theoretical paper shows how a central government can induce a policy concerning a municipal matter through a package of a policy requirement and a grant. We find that, due to fiscal competition and the possibility for citizens to move between municipalities, the central government can make all municipalities adopt the policy requirement despite the grant not being sufficiently high to make them gain from the reform. We apply this model to a recent Swedish child-care fee reform and can explain why all Swedish municipalities implemented the maximum child-care fee although it had a negative impact on many municipalities’ finances.<p> |
| Keywords: | child care; fiscal competition; municipality; intergovernmental grant |
| JEL: | H42 H72 H77 R23 |
| Date: | 2009–01–08 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0338&r=ure |
| By: | Sylvia Keim (Max Planck Institute for Demographic Research, Rostock, Germany); Andreas Klärner (Max Planck Institute for Demographic Research, Rostock, Germany); Laura Bernardi (Max Planck Institute for Demographic Research, Rostock, Germany) |
| Abstract: | Based on the analysis of qualitative interviews in western Germany we argue that social relationships have a strong impact on individuals´ and couples´ fertility intentions and behavior. We identify relevant others and mechanisms of influences. The core family is an important factor of influences but we are also able to show that social relationships beyond the core family of parents and siblings need to be considered when taking social influence on the family formation of individuals into account. |
| Keywords: | Germany, fertility, influence, social network |
| JEL: | J1 Z0 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:dem:wpaper:wp-2009-001&r=ure |
| By: | Theodore Crone; Leonard I. Nakamura; Richard Voith |
| Abstract: | Until the end of 1977, the U.S. consumer price index for rents tended to omit rent increases when units had a change of tenants or were vacant, biasing inflation estimates downward. Beginning in 1978, the Bureau of Labor Statistics (BLS) implemented a series of methodological changes that reduced this nonresponse bias, but substantial bias remained until 1985. The authors set up a model of nonresponse bias, parameterize it, and test it using a BLS microdata set for rents. From 1940 to 1985, the official BLS CPI-W price index for tenant rents rose 3.6 percent annually; the authors argue that it should have risen 5.0 percent annually. Rents in 1940 should be only half as much as their official relative price; this has important consequences for historical measures of rent-house-price ratios and for the growth of real consumption. (Revision forthcoming in Review of Economics and Statistics.) |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:08-28&r=ure |