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Liberty Street Economics
52 posts on "Credit"March 04, 2020
How Does Credit Access Affect Job-Search Outcomes and Sorting?
How does access to consumer credit affect the job finding behavior of displaced workers? Are these workers looking for jobs at larger and more productive firms? What is the impact of consumer credit on the amount of time it takes to find a job? In recent work with Ethan Cohen-Cole we explore these questions by building a new data set of individual credit reports (from TransUnion) merged with administrative earnings data. We describe our approach and our results in this post.
Continue reading "How Does Credit Access Affect Job-Search Outcomes and Sorting?" »
February 26, 2020
Did Subprime Borrowers Drive the Housing Boom?
Editor’s note: When this post was first published, the chart labels for “Non-Boom Counties” were incorrect; the labels have been corrected. (February 26, 12:00 pm)
The role of subprime mortgage lending in the U.S. housing boom of the 2000s is hotly debated in academic literature. One prevailing narrative ascribes the unprecedented home price growth during the mid-2000s to an expansion in mortgage lending to subprime borrowers. This post, based on our recent working paper, “Villains or Scapegoats? The Role of Subprime Borrowers in Driving the U.S. Housing Boom,” presents evidence that is inconsistent with conventional wisdom. In particular, we show that the housing boom and the subprime boom occurred in different places.
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Posted by Blog Author at 7:00 AM in Banks, Central Bank, Credit, Crisis, Economic History, Financial Institutions, Financial Markets, Household, Household Finance, Housing, Mortgages, Recession | Permalink | Comments (8)February 24, 2020
Understanding Heterogeneous Agent New Keynesian Models: Insights from a PRANK
In recent years there has been a lot of interest in the effect of income inequality (heterogeneity) on the economy, from both academics and policymakers. Researchers have developed Heterogeneous Agent New Keynesian (HANK) models that incorporate heterogeneity and uninsurable idiosyncratic risk into the New Keynesian models that have become a cornerstone of monetary policy analysis. This research has argued that heterogeneity and idiosyncratic risk change many features of New Keynesian models – the transmission of conventional monetary policy, the forward guidance puzzle, fiscal multipliers, the efficacy of targeted transfers and automatic stabilizers, among others. However, the source of the difference between HANK and representative agent New Keynesian (RANK) models remains unclear. This is because HANK models are typically not analytically tractable, leaving it unclear what exactly is driving the results. To shed light on the macroeconomic consequences of heterogeneity, we develop a stylized HANK model that contains key features present in more complicated HANK models.
Continue reading "Understanding Heterogeneous Agent New Keynesian Models: Insights from a PRANK" »
Posted by Blog Author at 7:00 AM in Central Bank, Credit, Federal Reserve, Financial Institutions, Fiscal Policy, Inequality, Macroecon, Monetary Policy, Recession, Systemic Risk | Permalink | Comments (0)February 11, 2020
Charging into Adulthood: Credit Cards and Young Consumers
The New York Fed’s Center for Microeconomic Data today released the Quarterly Report on Household Debt and Credit for the fourth quarter of 2019. Total household debt balances grew by $193 billion in the fourth quarter, marking a $601 billion increase in household debt balances in 2019, the largest annual gain since 2007. The main driver was a $433 billion annual upswing in mortgage balances, also the largest since 2007. Auto loan and credit card balances both increased by a brisk $57 billion last year, while student loan balances climbed by a more muted $51 billion, well below the $114 billion increase recorded in 2013—the fastest pace of growth for the series. The source for the Quarterly Report is the New York Fed’s Consumer Credit Panel—a panel data set that now spans twenty-one years, 1999-2019. The unique panel design allows us to identify new entrants to the credit market: as young people age into having credit reports and using credit products, they are “born” into the panel, enabling us to observe the credit behavior of young borrowers.
Continue reading "Charging into Adulthood: Credit Cards and Young Consumers" »
January 08, 2020
What’s in A(AA) Credit Rating?
Update: Clarifying text regarding the net leverage chart, as well as an additional chart, have been added to the bottom of this post. (January 10, 10:40 a.m.)
Rising nonfinancial corporate business leverage, especially for riskier “high-yield” firms, has recently received increased public and supervisory scrutiny. For example, the Federal Reserve’s May 2019 Financial Stability Report notes that “growth in business debt has outpaced GDP for the past 10 years, with the most rapid growth in debt over recent years concentrated among the riskiest firms.” At the upper end of the credit spectrum, “investment-grade” firms have also increased their borrowing, while the number of higher-rated firms has decreased. In fact, there are currently only two U.S. companies rated AAA: Johnson & Johnson and Microsoft. In this post, we examine recent trends in the issuance of investment-grade corporate bonds and argue that the combination of increased BAA issuance and virtually nonexistent AAA issuance both reduces the usefulness of the BAA–AAA spread as a credit risk indicator and poses a financial stability concern.
December 13, 2019
Tariffs, Auto Loans, Rising College Costs, and Other Top LSE Posts of 2019
With each new Liberty Street Economics post, we aim to build familiarity with New York Fed research and policy analysis, and to share the expertise of our staff when it is relevant to the issues of the day. More than sixty economists contribute, and we tap coauthors from other central banks and academia as well, so the topics vary widely, covering the alphabet of “JEL Codes” in the economics literature plus numerous policy themes. Judging from our internet traffic, we have a core group that checks in to read nearly everything. Some posts break out to a wider public, prompted by news articles that cite our findings and even a mention in a presidential candidate’s tweet. Take a look at our top five most-read posts of 2019.
Continue reading "Tariffs, Auto Loans, Rising College Costs, and Other Top LSE Posts of 2019" »
Posted by Blog Author at 7:00 AM in Credit, Household Finance, Student Loans, Tariffs | Permalink | Comments (1)August 13, 2019
Just Released: Mind the Gap in Delinquency Rates
Total household debt balances increased by $192 billion in the second quarter of 2019, boosted primarily by a $162 billion gain in mortgage installment balances, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data (the mortgage installment balances exclude home equity lines of credit, which are reported separately and have been declining in balance for some time). The new mortgage total of $9.4 trillion is slightly higher than the previous high in mortgage balances from the third quarter of 2008 in nominal terms.
Continue reading "Just Released: Mind the Gap in Delinquency Rates" »
May 29, 2019
Is There Too Much Business Debt?
By many measures nonfinancial corporate debt has been increasing as a share of GDP and assets since 2010. As the May Federal Reserve Financial Stability Report explained, high business debt can be a financial stability risk because heavily indebted corporations may need to cut back spending more sharply when shocks occur. Further, when businesses cannot repay their loans, financial institutions and investors incur losses. In this post, we review measures of corporate leverage in the United States. Although corporate debt has soared, concerns about debt growth are mitigated in part by higher corporate cash flows.
Posted by Blog Author at 7:00 AM in Banks, Corporate Finance, Credit, Financial Intermediation | Permalink | Comments (10)May 14, 2019
Just Released: Shifts in Credit Market Participation over Two Decades
The New York Fed’s Center for Microeconomic Data today released the Quarterly Report on Household Debt and Credit for the first quarter of 2019. Total household debt grew by $124 billion over the quarter, boosted by increases in mortgage, auto, and student loan balances. Over the past twenty years, the prevalence of each type of credit has waxed and waned, shifts linked to the housing boom, the Great Recession, and the subsequent economic recovery. In this blog post, we draw on the New York Fed’s Consumer Credit Panel—a nationally representative sample of Equifax credit report data and the basis of our Quarterly Report—to explore those longer-term trends in credit market participation.
Continue reading "Just Released: Shifts in Credit Market Participation over Two Decades" »
Posted by Blog Author at 11:01 AM in Credit, Household, Household Finance | Permalink | Comments (0)April 15, 2019
Is the Recent Tax Reform Playing a Role in the Decline of Home Sales?
HOUSING SERIES: Post 4 of 5
From the fourth quarter of 2017 through the third quarter of 2018, the average contract interest rate on new thirty-year fixed rate mortgages rose by roughly 70 basis points—from 3.9 percent to 4.6 percent. During this same period, there was a broad-based slowing in housing market activity with sales of new single-family homes declining by 7.6 percent while sales of existing single-family homes fell by 4.6 percent. Interestingly though, these declines in home sales were larger than in the two previous episodes when mortgage interest rates rose by a comparable amount. This post considers whether provisions in the Tax Cuts and Jobs Act of 2017 (TCJA) might have also contributed to the recent decline in housing market activity.
Continue reading "Is the Recent Tax Reform Playing a Role in the Decline of Home Sales?" »
Posted by Blog Author at 7:00 AM in Banks, Credit, Household, Household Finance, Housing, Mortgages | Permalink | Comments (1)About the BlogLiberty 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 Asani Sarkar, 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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