Liberty Street Economics
Liberty Street Economics
November 22, 2017

Are Student Loan Defaults Cyclical? It Depends



LSE_Are Student Loan Defaults Cyclical? It Depends

This post is the second in a two-part series on student loan default behavior. In the first post, we studied how educational characteristics (school type and selectivity, graduation, and major) and family background relate to the incidence of student loan default. In this post, we investigate whether default behavior has varied across cohorts of borrowers as the labor market evolved over time. Specifically, does the ability of student loan holders to repay their loans vary with the state of the labor market? Does the type of education these students received make any difference to this relationship?

November 20, 2017

Who Is More Likely to Default on Student Loans?



Who Is More Likely to Default on Student Loans?

This post seeks to understand how educational characteristics (school type and selectivity, graduation status, major) and family background relate to the incidence of student loan default. Student indebtedness has grown substantially, increasing by 170 percent between 2006 and 2016. In addition, the fraction of students who default on those loans has grown considerably. Of students who left college in 2010 and 2011, 28 percent defaulted on their student loans within five years, compared with 19 percent of those who left school in 2005 and 2006. Since defaulting on student loans can have serious consequences for credit scores and, by extension, the ability to purchase a home and take out other loans, it’s critical to understand how college and family characteristics correspond to default rates.

November 15, 2017

The Low Volatility Puzzle: Is This Time Different?



LSE_The Low Volatility Puzzle: Is This Time Different?

As stock market volatility hovers near all-time lows, some analysts are questioning whether investors are complacent, drawing an analogy to the lead-up to the financial crisis. But, is this time different? We follow up on our previous post by investigating the persistence of low volatility periods. Historically, realized stock market volatility is persistent and mean-reverting: low volatility today predicts slightly higher, but still low, volatility one month and one year from now. Moreover, as of mid-September, the market is pricing implied volatility of 19 percent in one to two years’ time. This level contrasts with the pre-crisis period when the term structure of implied volatility was relatively flat, which suggests this time may indeed be different, at least as measured by market participants’ pricing of risk.

Posted by Blog Author at 7:00 AM in Financial Markets | Permalink | Comments ( 0 )

November 14, 2017

Just Released: Auto Lending Keeps Pace as Delinquencies Mount in Auto Finance Sector



LSE_Just Released: Auto Lending Keeps Pace as Delinquencies Mount in Auto Finance Sector

Total household debt increased by $116 billion to reach $12.96 trillion in the third quarter of 2017, according to the latest Quarterly Report on Household Debt and Credit released today by the New York Fed’s Center for Microeconomic Data. Household debt has been growing since mid-2013, boosted in part by steady growth in auto loan balances, which have grown for twenty-six consecutive quarters thanks to record-high levels of newly originated loans. Although new vehicle sales had begun to slump over the summer after several strong years of growth, September and October saw a rebound in sales, ending with over 18 million vehicles sold (seasonally adjusted at an annualized rate), and auto loan originations in the third quarter were commensurate with these numbers. In this post, we revisit the state of auto lending and auto loan performance, using the New York Fed Consumer Credit Panel which is based on Equifax credit data.

Posted by Blog Author at 11:00 AM in Household Finance | Permalink | Comments ( 1 )

November 13, 2017

The Low Volatility Puzzle: Are Investors Complacent?



LSE_The Low Volatility Puzzle: Are Investors Complacent?

In recent months, some analysts and policymakers have raised concerns about the unusually low level of stock market volatility. For example, in the June Federal Open Market Committee (FOMC) minutes “a few participants expressed concern that subdued market volatility, coupled with a low equity premium, could lead to a buildup of risks to financial stability.” In this post, we review this concern and find the evidence on investor complacency is mixed. On one hand, we present a view suggesting that historical volatility may have been abnormally high, rather than current volatility being abnormally low. On the other hand, we find that estimates of the volatility risk premium are somewhat low, which is consistent with the view that investor risk tolerance has increased. We extend this analysis in a related post publishing on Wednesday.

Posted by Blog Author at 7:00 AM in Financial Markets | Permalink | Comments ( 2 )

November 08, 2017

Understanding Permanent and Temporary Income Shocks



LSE_Understanding Permanent and Temporary Income Shocks

The earnings of 200 million U.S. workers change each year for various reasons. Some of these changes are anticipated while others are more unexpected. Although many of these changes may be due to pleasant surprises—such as receiving salary raises and promotions—others involve disappointments—such as falling into unemployment. Arguably, some of these factors have rather short-lived effects on an individual’s earnings, whereas others may have permanent effects. Many labor economists have been interested in these various shocks to earnings. How big are the more permanent shocks to earnings? How large are they relative to those that are temporary in nature? What are the sources of these shocks? In this blog post, we exploit a novel data set that enables us to explore the properties of earnings shocks: their magnitudes as well as their origins.

November 06, 2017

Mission Almost Impossible: Developing a Simple Measure of Pass-Through Efficiency



LSE_2017_Mission Almost Impossible: Developing a Simple Measure of Pass-Through Efficiency

Short-term credit markets have evolved significantly over the past ten years in response to unprecedentedly high levels of reserve balances, a host of regulatory changes, and the introduction of new monetary policy tools. Have these and other developments affected the way monetary policy shifts “pass through” to money markets and, ultimately, to households and firms? In this post, we discuss a new measure of pass‑through efficiency, proposed by economists Darrell Duffie and Arvind Krishnamurthy at the Federal Reserve’s 2016 Jackson Hole summit.

October 18, 2017

What Explains Shareholder Payouts by Large Banks?



Editor's note: This post has been corrected to show that the $750 billion increase in common equity at CCAR banks since 2009 reflects a rise of more than 150 percent. (October 20, 2017, 2:06 p.m.)

LSE_2017_What Explains Shareholder Payouts by Large Banks?

On June 28, the Federal Reserve released the latest results of the Comprehensive Capital Analysis and Review (CCAR), the supervisory program that assesses the capital adequacy and capital planning processes of large, complex banking companies. The Fed did not object to any of the banks’ capital plans, an outcome that was widely heralded as a signal that these banks would be able to increase payouts to their shareholders. And in fact, immediately following the release of the CCAR results, several large banks announced substantial increases in quarterly dividends and record-sized share repurchase programs. In this post, we put these announced increases into recent historical context, showing how banks’ payouts to shareholders have increased since the financial crisis and describing how CCAR has affected the composition of payouts between dividends and share repurchases.

October 16, 2017

Discretionary Services Spending Has Finally Made It Back (to 2007)



LSE_2017_Discretionary Services Spending Has Finally Made It Back (to 2007)

The current economic expansion is now the third-longest expansion in U.S. history (based on National Bureau of Economic Research [NBER] dating of U.S. business cycles). Even so, average growth in this expansion—a 2.1 percent annual rate—has been extraordinarily weak. In this post, I return to previous analysis on a specific portion of consumer spending—household discretionary services expenditures—that has displayed unusual weakness in the current expansion (see this post for the definition of discretionary versus nondiscretionary services expenditures, and these posts from 2012 and 2014 for previous updates). Even though these expenditures have picked up over the past couple of years, such that they have finally exceeded their previous peak, their recovery remains well behind that of other major categories of consumer spending. One explanation for the slow growth of spending on discretionary services is that households are concerned about their future income.

Posted by Blog Author at 7:00 AM in Great Recession , Macroecon | Permalink | Comments ( 2 )

October 13, 2017

Upstate New York’s Expansion Is Losing Steam



LSE_2017_Upstate New York’s Expansion Is Losing Steam

All in all, the upstate New York economy fared pretty well during the last business cycle. Job losses were less severe in upstate New York during the Great Recession than they were for the nation as a whole, which was quite unusual. And once the jobs recovery began in 2010, employment in upstate New York started to grow again, though at a pace well below the nation’s. The result of this slow but steady recovery was that by mid-2015, upstate New York had gained back all of the jobs that were lost during the Great Recession—a milestone the region had failed to reach at all during the prior few business cycles. Troublingly, though, job growth in the region stalled shortly after crossing this milestone. Indeed, only a handful of jobs have been added to the area’s total employment count since early 2016. In this blog post, we explore the nature and magnitude of this slowdown in upstate New York.

Posted by Blog Author at 7:00 AM in Regional Analysis | Permalink | Comments ( 0 )

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Liberty Street Economics features insight and analysis from New York Fed economists working at the intersection of research and policy. Launched in 2011, the blog takes its name from the Bank’s headquarters at 33 Liberty Street in Manhattan’s Financial District.

The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Donald Morgan, all economists in the Bank’s Research Group.

The views expressed are those of the authors, and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.


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