Liberty Street Economics

July 8, 2020

Medicare and Financial Health across the United States

Paul Goldsmith-Pinkham, Maxim Pinkovskiy, and Jacob Wallace

Consumer financial strain varies enormously across the United States. One pernicious source of financial strain is debt in collections—debt that is more than 120 days past due and that has been sold to a collections agency. In Massachusetts, the average person has less than $100 in collections debt, while in Texas, the average person has more than $300. In this post, we discuss our recent staff report that exploits the fact that virtually all Americans are universally covered by Medicare at 65 to show that health insurance not only improves financial health on average, but also is a major explanation for the heterogeneity in financial strain across the country. We find that Medicare affects different parts of the United States differently and plays a particularly important role in improving financial health in the least advantaged areas.

Posted at 8:00 am in Household Finance, Inequality | Permalink

Do College Tuition Subsidies Boost Spending and Reduce Debt? Impacts by Income and Race

Rajashri Chakrabarti, William Nober, and Wilbert van der Klaauw

In an October post, we showed the effect of college tuition subsidies in the form of merit-based financial aid on educational and student debt outcomes, documenting a large decline in student debt for those eligible for merit aid. Additionally, we reported striking differences in these outcomes by demographics, as proxied by neighborhood race and income. In this follow-up post, we examine whether and how this effect passes through to other debt and consumption outcomes, namely those related to autos, homes, and credit cards. We find that access to merit aid leads to an immediate but temporary increase in eligible individuals’ consumption in these categories. The increase is followed by a decline in consumption and a reduction in total debt of these types in the longer term. Importantly, there are marked differences in these consumption and debt patterns across groups, as evident when we introduce proxies for demographic group using the income and racial composition of the students’ home neighborhoods of origin.

Posted at 7:45 am in Education, Household Finance, Inequality, Student Loans | Permalink

Measuring Racial Disparities in Higher Education and Student Debt Outcomes

Rajashri Chakrabarti, William Nober, and Wilbert van der Klaauw

Across the United States, the cost of all types of higher education has been rising faster than overall inflation for more than two decades. Despite rising costs, aggregate undergraduate enrollment rose steadily between 2000 and 2010 before leveling off and dipping slightly to its current level. Rising college costs have steadily increased dependence on student debt for college financing, with many students and parents turning to federal and private loans to pay for higher education. An earlier post in this series reported that borrowers in majority Black areas have higher student loan balances and rates of default than those in both majority white and majority Hispanic areas. In this post, we study how differences in college attendance rates and in the types of colleges attended generate heterogeneity in loan experiences. Specifically, using nationwide data, we analyze heterogeneities in college-going and heterogeneities in student debt and default experiences by college type across individuals living in majority Black, majority Hispanic, and majority white zip codes.

Posted at 7:30 am in Education, Equitable Growth, Household Finance, Inequality, Student Loans | Permalink

Who Has Been Evicted and Why?

Andrew Haughwout, Haoyang Liu, and Xiaohan Zhang

More than two million American households are at risk of eviction every year. Evictions have been found to cause prolonged homelessness, worsened health conditions, and lack of credit access. During the COVID-19 outbreak, governments at all levels implemented eviction moratoriums to keep renters in their homes. As these moratoriums and enhanced income supports for unemployed workers come to an end, the possibility of a wave of evictions in the second half of the year is drawing increased attention. Despite the importance of evictions and related policies, very few economic studies have been done on this topic. With the exception of the Milwaukee Area Renters Study, evictions are rarely measured in economic surveys. To fill this gap, we conducted a novel national survey on evictions within the Housing Module of the Survey of Consumer Expectations (SCE) in 2019 and 2020. This post describes our findings.

Posted at 7:15 am in Credit, Housing, Inequality | Permalink

Inequality in U.S. Homeownership Rates by Race and Ethnicity

Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw

Homeownership has historically been an important means for Americans to accumulate wealth—in fact, at more than $15 trillion, housing equity accounts for 16 percent of total U.S. household wealth. Consequently, the U.S. homeownership cycle has triggered large swings in Americans’ net worth over the past twenty-five years. However, the nature of those swings has varied significantly by race and ethnicity, with different demographic groups tracing distinct trajectories through the housing boom, the foreclosure crisis, and the subsequent recovery. Here, we look into the dynamics underlying these divergences and explore some potential explanations.

Posted at 7:00 am in Equitable Growth, Household Finance, Housing, Inequality | Permalink

July 7, 2020

Introduction to Heterogeneity Series III: Credit Market Outcomes

Rajashri Chakrabarti

Following up series on heterogeneity and inequality broadly and in labor market outcomes specifically, we turn our focus to further documenting heterogeneity in credit market outcomes, looking at disparities in home ownership rates, varying exposure to evictions, differing gains from tuition support and Medicare programs, and more.

Posted at 8:00 am in Education, Household Finance, Housing, Inequality, Student Loans | Permalink

A New Reserves Regime? COVID‑19 and the Federal Reserve Balance Sheet

Gara Afonso, Marco Cipriani, Gabriele La Spada, and Will Riordan

Aggregate reserves declined from nearly $3 trillion in August 2014 to $1.4 trillion in mid-September 2019, as the Federal Reserve normalized its balance sheet. This decline came to a halt in September 2019 when the Federal Reserve responded to turmoil in short-term money markets, with reserves fluctuating around $1.6 trillion in the early months of 2020. Then, in response to the COVID-19 pandemic, the Federal Reserve dramatically expanded its balance sheet, both directly, through outright purchases and repurchase agreements, and indirectly, as a consequence of the facilities to support market functioning and the flow of credit to the real economy. In this post, we characterize the increase in reserves between March and June 2020, describing changes to the distribution and concentration of reserves.

Posted at 7:00 am in Fed Funds, Federal Reserve, Fiscal Policy, Liquidity, Monetary Policy, Pandemic | Permalink

July 1, 2020

How Liquid Is the New 20‑Year Treasury Bond?

Michael Fleming and Francisco Ruela

Fleming and Ruela take a first look at the U.S. government’s new 20-year bond, using a short sample of available data to describe its trading activity and liquidity.

Posted at 7:00 am in Financial Markets, Pandemic, Treasury | Permalink

June 30, 2020

Leverage Ratio Arbitrage All Over Again

Donald P. Morgan, Dong Beom Choi, and Michael R. Holcomb

Leverage limits as a form of capital regulation have a well-known, potential bug: If banks can’t lever returns as desired, they can boost returns on equity by shifting toward riskier, higher yielding assets. That reach for yield is the leverage rule “arbitrage.” But would banks do that? In a previous post, we discussed evidence from our working paper that banks did do just that in response to the new leverage rule that took effect in 2018. This post discusses new findings in our revised paper on when and how banks arbitraged.

Posted at 7:00 am in Banks, Crisis, Regulation | Permalink | Comments (1)

June 29, 2020

Municipal Debt Markets and the COVID‑19 Pandemic

Marco Cipriani, Andrew Haughwout, Ben Hyman, Anna Kovner, Gabriele La Spada, Matthew Lieber, and Shawn Nee

In March, with the outbreak of the COVID-19 pandemic in the United States, the market for municipal securities was severely stressed: mutual fund redemptions sparked unprecedented selling of municipal securities, yields increased sharply, and issuance dried up. In this post, we describe the evolution of municipal bond market conditions since the onset of the COVID-19 crisis. We show that conditions in municipal markets have improved significantly, in part a result of the announcement and implementation of several Federal Reserve facilities. Yields have decreased substantially, mutual funds have received significant inflows, and issuance has rebounded. These improvements in municipal market conditions help ensure that state and local governments have better access to funding for critical capital investments.

Posted at 10:02 am in Federal Reserve, Fiscal Policy | Permalink

Markets & Policy Implementation

Liberty Street Economics

Medicare and Financial Health across the United States

Do College Tuition Subsidies Boost Spending and Reduce Debt? Impacts by Income and Race

Measuring Racial Disparities in Higher Education and Student Debt Outcomes

Who Has Been Evicted and Why?

Inequality in U.S. Homeownership Rates by Race and Ethnicity

Introduction to Heterogeneity Series III: Credit Market Outcomes

A New Reserves Regime? COVID‑19 and the Federal Reserve Balance Sheet

How Liquid Is the New 20‑Year Treasury Bond?

Leverage Ratio Arbitrage All Over Again

Municipal Debt Markets and the COVID‑19 Pandemic

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