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Journal Article
Credit, equity, and mortgage refinancings
Using a unique loan level data set that links individual household credit ratings with property and loan characteristics, the authors test the extent to which homeowners' credit ratings and equity affect the likelihood that mortgage loans will be refinanced as interest rates fall. Their logit model estimates strongly support the importance of both the credit and equity variables. Furthermore, the authors' results suggest that a change in the overall lending environment over the past decade has increased the probability that a homeowner will refinance.
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Rational bias in macroeconomic forecasts
This paper develops a model of macroeconomic forecasting in which the wages firms pay their forecasters are a function of their accuracy as well as the publicity they generate for their employers by being correct. In the resulting Nash equilibrium, forecasters with identical models, information, and incentives nevertheless produce a variety of predictions in order to maximize their expected wages. In the case of heterogeneous incentives, the forecasters whose wages are most closely tied to publicity, as opposed to accuracy, produce the forecasts that deviate most from the consensus. We find ...
Journal Article
Are U.S. reserve requirements still binding?
Paper for a conference sponsored by the Federal Reserve Bank of New York entitled Financial Innovation and Monetary Transmission
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Rational bias in macroeconomic forecasts
This paper develops a model of macroeconomic forecasting in which a forecaster's wage is a function of his accuracy as well as the publicity he generates for his firm by being correct. In the resulting Nash equilibrium, forecasters with identical models, information, and incentives nevertheless produce a variety of predictions, consciously biasing them in order to maximize expected wages. In the case of heterogeneous incentives, the forecasters whose wages are most closely tied to publicity, as opposed to accuracy, produce the forecasts that deviate most from the consensus. We find empirical ...
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Effects of household creditworthiness on mortgage refinancings
Using a unique loan level data set that links individual household credit ratings with property and loan characteristics, we test the extent to which homeowners' equity and credit ratings affect the likelihood that mortgage loans will be refinanced as interest rates fall. The logit model estimates strongly support the importance of both the equity and credit ratings affect the likelihood that mortgage loans will be refinanced as interest rates fall. The logit model estimates strongly support the importance of both the equity and credit variable. These results are interesting both from the ...
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Implied mortgage refinancing thresholds
The optimal prepayment model asserts that rational homeowners would refinance if they can reduce the current value of their liabilities by an amount greater than the refinancing threshold, defined as the cost of carrying the transaction plus the time value of the embedded call option. To compute the notional value of the refinancing threshold, researchs have traditionally relied on a discrete option-pricing model. Using a unique loan level dataset that links homeowner attributes with property and loan characteristics, this study proposes an alternative approach of estimating the implied value ...