Liberty Street Economics
Look for our next post on May 4, following the FOMC meeting.
March 05, 2015

From the Vault: Tracking Subprime Auto Loans



Recent news of banks scaling back on the issuance of car loans to borrowers with a weak credit history, coupled with recent media investigations into auto lending fraud, have drawn renewed attention to a surge in subprime auto lending. That boom is one we’ve tracked on our blog as part of an effort to shed light on ongoing change in the consumer lending market.

Posted by Blog Author at 1:45 PM in Household Finance | Permalink | Comments ( 1 )

March 04, 2015

No Guarantees, No Trade!



World trade fell 20 percent relative to world GDP in 2008 and 2009. Since then, there has been much debate about the role of trade finance in the Great Trade Collapse. Distress in the financial sector can have a strong impact on international trade because exporters require additional working capital and rely on specific financial products, in particular letters of credit, to cope with risks when selling abroad. In this post, which is based on a recent Staff Report, we shed new light on the link between finance and trade, showing that changes in banks’ supply of letters of credit have economically significant effects on firms’ export behavior. Our research suggests that trade finance helps explain the drop in exports in 2008–2009, especially to smaller and poorer markets.

March 02, 2015

Euro Area Inflation Expectations–Anchors Away?



Euro-inflation

Euro area inflation expectations have been falling at both short- and long-term horizons, with the latter development suggesting the current low inflation environment is perceived as likely to persist. Because long-term inflation expectations play a key role in the decisions of households and firms, economists have stressed the importance of long-term inflation expectations being anchored at a central bank’s target. In this post, we use survey data on inflation forecasts to document evidence of recent “unanchoring” of euro area long-term inflation expectations, and note the difference in comparison to the 2008-09 period, when current inflation and short-term inflation expectations also declined but long-term inflation expectations remained steady.

Posted by Blog Author at 7:00 AM in Macroecon , Monetary Policy | Permalink | Comments ( 0 )

February 25, 2015

The 2005 Bankruptcy Reform and the Foreclosure Crisis



LSE-bankruptcy-reform2-103583108-450
Second in a two-part series

Our previous post showed that the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was associated with a sizable rise in foreclosure, in addition to a decline in bankruptcy filings and a rise in insolvency. In this post, we examine one possible explanation for the rise in foreclosure: the substitution hypothesis. Prior to the 2005 reform, individuals facing insolvency could discharge their unsecured debt via bankruptcy, thus retaining the ability to remain current on their home debts. After the reform, since bankruptcy became too expensive for many, default on home loans was the most effective way for these individuals to reduce outstanding debt. The idea that BAPCPA caused a shift from bankruptcy to foreclosure is not new; see Morgan et al. (2012) and Li, White, and Zhu (2011). In this post, we use the Federal Reserve Bank of New York’s Consumer Credit Panel (based on Equifax data, described here) to provide evidence on the mechanism through which this substitution occurred, and to precisely quantify the magnitude of its impact on foreclosures.

Posted by Blog Author at 7:00 AM in Macroecon | Permalink | Comments ( 1 )

February 23, 2015

Insolvency after the 2005 Bankruptcy Reform



Correction: The source notes for the charts in this post were incomplete and have been corrected. We regret the error.

LSE-bankruptcy-reform1-103583108-450
First in a two-part series
Personal bankruptcy was introduced in the United States through the Bankruptcy Act of 1978. After passage of the act, bankruptcy rates rose steadily until 2005, when Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). BAPCPA was signed by President George W. Bush on April 20, 2005, and applied to bankruptcy cases filed on or after October 17, 2005. The reform caused a large and permanent reduction in bankruptcy filings. In this post, we study the mechanism behind this drop and the consequences for households.

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

February 20, 2015

Payback Time? Measuring Progress on Student Debt Repayment



Correction: We changed the adjective describing borrowers owing less than $5,000 from “high-balance” to “small-balance” in the first line of the seventh paragraph. We regret the error.


Student-loan-3-133999137-450
Third in a three-part series
Student debt continues to make headlines because of its high balances and high rates of delinquency and default—troubling issues that we discussed in our previous posts this week. A less prominent, but still important, issue is the pace at which former students are—or are not—paying off their debts. This issue is important to borrowers because the longer they take to repay their debts, the more interest they accrue, the longer they have to worry about making payments, and the longer they have to deal with the consequences of unpaid debts. It’s also important to the macroeconomy because longer repayment periods mean that a large number of young adults may have their spending and housing purchase decisions constrained by student debt (and widespread delinquency) for many years, even if they eventually qualify for some debt forgiveness. For these reasons, in this third and final post of our student loan series, we use our Consumer Credit Panel (based on Equifax data) to examine how fast (or slow) student borrowers are able to pay off their loans.

Posted by Blog Author at 7:00 AM in Household Finance | Permalink | Comments ( 6 )

February 19, 2015

Looking at Student Loan Defaults through a Larger Window



Student-loan-2-iStock_000035160778-450
Second in a three-part series
Most of our previous discussion about high levels of student loan delinquency and default has used static measures of payment status. But it is also instructive to consider the experience of borrowers over the lifetime of their student loans rather than at a point in time. In this second post in our three-part series on student loans, we use the Consumer Credit Panel (CCP), which is itself based on Equifax credit data, to create cohort default rates (CDRs) that are analogous to those produced by the Department of Education but go beyond their three-year window. We find that default rates continue to grow after three years and that performance by cohort worsened in the years leading up to the Great Recession.

Posted by Blog Author at 7:00 AM in Household Finance | Permalink | Comments ( 6 )

February 18, 2015

The Student Loan Landscape




StudentLoanLandscape
First in a three-part series
Student loans have recently attracted a huge amount of attention from the press and policymakers. In this post, the first in our three-part series this week, we’ll use our Consumer Credit Panel dataset, a representative sample drawn from anonymized Equifax credit data, to describe the landscape of the outstanding U.S. student loan portfolio. Much of our discussion will address updates to several graphs that we’ve presented before, most recently in a 2014 staff report, “Measuring Student Debt and Its Performance”; readers can find more detail there. We’ll also update some earlier analysis of the broader effects that student debt may be having on the economy, including data through 2014 on the relationship between student loans and mortgages that we discussed in a blog post last spring.

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

February 17, 2015

Just Released: Student Loan Delinquency Rate Defies Overall Downward Trend in Household Debt and Credit Report for Fourth Quarter 2014



Today, the New York Fed released the Quarterly Report on Household Debt and Credit for the fourth quarter of 2014. The report is based on data from the New York Fed’s Consumer Credit Panel, a nationally representative sample drawn from anonymized Equifax credit data. Overall, aggregate balances increased by $117 billion, or 1.0 percent, boosted by increases in all credit types except home equity lines of credit.

Posted by Blog Author at 11:15 AM in Household Finance | Permalink | Comments ( 2 )

February 13, 2015

Historical Echoes: No Valentines Please, We’re British



Eros-Central-Bank_The_Old_Lady_of_Threadneedle_St-450-(2)

It’s almost Valentine’s Day, and we’re not asking you questions or dispensing advice about it—that’s not (yet) our business. However, we can offer two attempts at humor regarding the Bank of England and amorous activity. The first touches upon a central bank’s fear for its reputation and the second its fear of being “manhandled” by the government.

Posted by Blog Author at 7:00 AM in Historical Echoes | Permalink | Comments ( 1 )

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Liberty Street Economics features insight and analysis from economists working at the intersection of research and Fed policymaking.

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