Essays on Household Finance and Credit Markets - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Essays on Household Finance and Credit Markets write by Albert Zevelev. This book was released on 2015. Essays on Household Finance and Credit Markets available in PDF, EPUB and Kindle. The US housing boom was accompanied by a rise in mortgage leverage. The subsequent bust was accompanied by a rise in foreclosure. This paper introduces a dynamic general equilibrium model to study how leverage and foreclosure affect house prices. The model shows how foreclosure sales, through their effect on housing supply, amplify and propagate house price drops. A calibration to match the bust shows consumption and housing need to be sufficiently complementary to fit the data. Since leverage plays a key role in foreclosure, a regulator can reduce systemic risk by placing a cap on leverage. Counterfactual experiments show that in a world with less leverage, the same economic shock leads to less foreclosure and less severe, shorter busts in house prices. A 90% cap on loan-to-value ratios in 2006 predicts house prices would have fallen 12% rather than 18% as in the data. The regulator faces a trade-off in that less leverage means less housing for constrained households, but also fewer foreclosures and less severe busts in house prices. A regulator with reasonable preference parameters would choose a cap of 95%.
Three Essays on Household Finance
Three Essays on Household Finance - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Three Essays on Household Finance write by Alexander Calen Aberlin Kaufman. This book was released on 2010. Three Essays on Household Finance available in PDF, EPUB and Kindle. This dissertation presents three essays on household finance. All three focus on contemporary U.S. consumer credit markets, with particular attention paid to how market organization and firm incentives mediate the way firms interact with customers and the types of contracts they offer. The first essay examines the question of whether securitization was responsible for poor underwriting standards during the recent mortgage crisis. The second essay attempts to quantify the effect of Fannie Mae and Freddie Mac's intervention in the conforming mortgage market on equilibrium outcomes such as price and contract structure. The third essay investigates how mutual ownership of a firm by its customers can limit that firm's incentive to offer contracts meant to take advantage of customers' behavioral biases.
Essays on Household Finance and Credit Market Regulation
Essays on Household Finance and Credit Market Regulation - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Essays on Household Finance and Credit Market Regulation write by Scott Thomas Nelson. This book was released on 2018. Essays on Household Finance and Credit Market Regulation available in PDF, EPUB and Kindle. This thesis consists of three chapters on household finance and regulatory policy in consumer credit markets. The first chapter studies the efficiency and distributional effects of credit card pricing restrictions in the 2009 Credit CARD Act. I document how two forces drive these restrictions' effects: first, the Act constrains lenders from adjusting interest rates in response to new information about default risk, which exacerbates adverse retention of risky borrowers and induces partial market unraveling on new accounts; second, the Act constrains lenders from pricing private information about demand, which reduces markups on inelastic borrowers. I develop a structural model of the US credit card market to study how heightened information problems and lower markups interact in equilibrium to determine the Act's effects. I find that equilibrium market unraveling is most severe for subprime consumers, but the reduction in markups is substantial throughout the market, so that on net, the Act's restrictions allow consumers of all credit scores to capture higher surplus on average. Total surplus inclusive of firm profits rises among prime consumers, whereas gains in subprime consumer surplus are greatest among borrowers who were recently prime. The second chapter (co-authored with Alexander Bartik) also studies the regulation of credit market information, focusing on the use of such information in labor markets. In particular we study recent bans on employers' use of credit reports to screen job applicants. This practice has been popular among employers but controversial for its perceived disparate impact on racial minorities. Exploiting geographic, temporal, and job-level variation in which workers are covered by these bans, we analyze these bans' effects in two datasets: the panel dimension of the Current Population Survey (CPS); and data aggregated from state unemployment insurance records. We find that the bans reduced job-finding rates for blacks by 7 to 16 percent, and increased subsequent separation rates for black new hires by 3 percentage points. Results for Hispanics and whites are less conclusive. We interpret these findings in a statistical discrimination model in which credit report data, more for blacks than for other groups, send a high-precision signal relative to the precision of employers' priors. The third chapter (co-authored with Sydnee Caldwell and Daniel Waldinger) returns to consumer credit markets and studies determinants of household borrowing behavior. Many economic models predict that consumption and borrowing decisions today depend on beliefs about risky future income. We quantify one contributor to income uncertainty and study its effects: uncertainty about annual tax refunds. In a low-income sample for whom tax refunds can be a substantial portion of income, we collect novel survey evidence on tax filers' expectations of and uncertainty about their tax refunds; we then link these data with administrative tax data, a panel of credit reports, and survey-based consumption measures. We find that while many households have correct mean expectations about their refunds, there is substantial, and accurately reported, subjective uncertainty. Households borrow moderate amounts out of expected tax refunds: for each dollar of expected refund, roughly 15 cents in revolving debt is repaid after refund receipt. This borrowing and repayment is less pronounced for more uncertain households, consistent with precautionary behavior. The unexpected component of tax refunds is not used to pay down debt, but rather induces higher debt levels. Credit report and survey evidence both suggest that these higher debt levels are driven by newly financed durable purchases such as vehicles.
Essays on Household Finance
Essays on Household Finance - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Essays on Household Finance write by Bruno Ferman. This book was released on 2012. Essays on Household Finance available in PDF, EPUB and Kindle. This dissertation consists of three essays. The first chapter studies whether credit demand is sensitive to interest rates, to the prominence of interest rate disclosure, and to nudges. Consumer credit regulations usually require that lenders disclose interest rates. However, lenders can evade the spirit of these regulations by concealing rates in the fine print and highlighting low monthly payments. I explore the importance of such evasion in Brazil, where consumer credit for lower and middle income borrowers is expanding rapidly, despite particularly high interest rates. By randomizing contract interest rates and the degree of interest rate disclosure, I show that most borrowers are highly rate-sensitive, whether or not interest rates are prominently disclosed in marketing materials. An exception is high-risk borrowers, for whom rate disclosure matters. These clients are rate-sensitive only when disclosure is prominent. I also show that borrowers who choose this type of financing are responsive to nudges that favor longer-term plans. Despite this evidence, the financial consequences of information disclosure, even for high-risk borrowers, are relatively modest, and clients are less susceptible to nudges when the stakes are higher. Together, these results suggest that consumers in Brazil are surprisingly adept at decoding information even when lenders try to obfuscate the interest rate information, suggesting a fair amount of sophistication in this population. The second chapter (co-authored with Leonardo Bursztyn, Florian Ederer, and Noam Yuchtman) studies the importance of peer effects in financial decisions. Using a field experiment conducted with a financial brokerage, we attempt to disentangle channels through which a person's financial decisions affect his peers'. When someone purchases an asset, his peers may also want to purchase it because they learn from his choice ("social learning") and because his possession of the asset directly affects others' utility of owning the same asset ("social utility"). We randomize whether one member of a peer pair who chose to purchase an asset has that choice implemented, thus randomizing possession of the asset. Then, we randomize whether the second member of the pair: 1) receives no information about his peer, or 2) is informed of his peer's desire to purchase the asset and the result of the randomization determining possession. We thus estimate the effects of: (a) learning plus possession, and (b) learning alone, relative to a control group. In the control group, 42% of individuals purchased the asset, increasing to 71% in the "social learning only" group, and to 93% in the "social learning and social utility" group. These results suggest that herding behavior in financial markets may result from social learning, and also from a desire to own the same assets as one's peers. The third chapter (co-authored with Pedro Daniel Tavares) uses data on checking and savings accounts for a sample of clients from a large bank in Brazil to calculate the prevalence and cost of "borrowing high and lending low" behavior in a setting where the spread between the borrowing and saving rates is on the order of 150% per year. We find that most clients maintain an overdrawn account at least one day a year while having liquid assets. However, the yearly amount of avoidable financial charges would only correspond, on average, to less than 0.5% of clients' yearly earnings. We also show that consumers are less likely to engage in such behavior when the costs of doing so are higher. These results suggest that the spread between the borrowing and saving rates is a key determinant of this behavior.
Essays in Household Finance
Essays in Household Finance - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Essays in Household Finance write by Madelaine Reid L'Esperance. This book was released on 2019. Essays in Household Finance available in PDF, EPUB and Kindle. Many US adults have difficulty managing their financial lives. Financial capability, the knowledge, skills, and access to resources to handle finances effectively, is essential to promoting financial well-being. However, the pathways to improve financial capability remain unclear. Traditional approaches, including financial education, counseling and coaching as well as safety net programs and safe, affordable financial services, are well explored by researchers. However, there are also non-traditional channels which have received less attention. In this dissertation, these approaches are examined, specifically learning by doing, learning from others, and behavioral interventions. First, the influence of repeated experiences in the financial market on financial capability is explored. Using a panel of US couples, the study reveals that relative income is a key determinant of financial responsibility in couples, and partners who defer responsibility are less likely to know their credit score. The second essay examines the effect of youth employment, an experience that may build financial capability, on financial well-being in young adulthood using several approaches to deal with selection into youth employment. Working in high school may provide youth with an opportunity to learn how to effectively manage their finances through experiences and information sharing. The analysis reveals that those who work as youth are not more financial capable in young adulthood than their counterparts who were not employed. Finally, the third essay investigates the role of reminders for encouraging consumers to attend to information about their finances. This study uses a field experiment to test whether reminding credit union members that they have access to a free credit monitoring service motivates them to check their credit score and report. Despite the promise of this low-cost approach to improving accuracy of beliefs about creditworthiness, those who receive the message are no more likely to check their credit than a control group who receives no message. Overall, these essays contribute new evidence on the potential role of non-traditional pathways to financial capability that inform the design of programs and financial services that aim to better inform consumers and improve financial well-being. A roadmap for future research is offered.
