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Briefing
Forecasting House Price Growth Using Months Supply of Housing
House prices are of keen interest to policymakers, economists, industry professionals and homebuyers. Naturally, forecasting the direction of house prices receives considerable attention. In this article, we'll examine a specific metric that has a robust ability to predict house price growth: months supply.Months supply is the number of houses available for sale divided by the number of houses sold per month. For example, if months supply is 6, it would take six months to sell all of the current inventory, assuming no additional houses were added and the sales per month did not change. Since ...
Working Paper
Sovereign Debt and Credit Default Swaps
ow do credit default swaps (CDS) affect sovereign debt markets? The answer depends crucially on trading frictions, risk-sharing, arbitrage violations, and spillovers from secondary to primary markets. We propose a sovereign default model where investors trade bonds and CDS over the counter via directed search. CDS affect bond prices through several channels. First, CDS act as a synthetic bond. Second, CDS reduce bond-investing risks, allowing exposure to be unwound. Third, CDS availability increases trading profitability, which induces entry and reduces trading costs. Last, these direct ...
Working Paper
Efficient Computation with Taste Shocks
Taste shocks result in nondegenerate choice probabilities, smooth policy functions, continuous demand correspondences, and reduced computational errors. They also cause significant computational cost when the number of choices is large. However, I show that, in many economic models, a numerically equivalent approximation may be obtained extremely efficiently. If the objective function has increasing differences (a condition closely tied to policy function monotonicity) or is concave in a discrete sense, the proposed algorithms are O(n log n) for n states and n choice--a drastic improvement ...
Briefing
Noise Bargaining: A New Perspective on Single Proposers, Negotiation and Delays
Many real-world bargaining problems feature a single proposer and delays in reaching agreements.Most existing bargaining models feature alternating proposers with immediate settlement.Noise bargaining — a new approach discussed in my recent working paper, co-authored with Pablo Guerron-Quintana — introduces a single proposer with endogenous delay.
Briefing
Do Student Loans Drive Up College Tuition?
To what extent do student loans drive up college tuition? In ongoing research, we find the answer has varied substantially over time. Following large expansions in student loan limits in 1993 and 2007, our results show further increases in loan limits would have essentially zero effect. In contrast, in the years before those expansions, our estimates indicate tuition would have increased $0.10 for every $1 increase in borrowing limits.
Briefing
Loan-Delinquency Projections for COVID-19
The authors forecast the effects of COVID-19 on loan-delinquency rates under three scenarios for unemployment and house-price movements. Absent policy interventions, the model predicts peak loan-delinquency rates of 2.8 percent in the favorable scenario, 8.1 percent in the severe scenario, and 3.9 percent in the baseline scenario. The greatest reductions in delinquency are achieved through home mortgage forbearance and student loan forbearance, with fiscal transfers playing a smaller role.
Briefing
Incarceration's Life-Long Impact on Earnings and Employment
We estimate the impact of incarceration on individuals' earnings and employment prospects using a statistical model that controls for race, gender, education and other factors. The model reveals that first-time incarceration for black men with a high school diploma reduces expected lifetime earnings by 33 percent and employment by 22 percent. For high school educated white men, it reduces expected lifetime earnings by 43 percent and employment by 27 percent.
Briefing
Tracking College Tuition Growth
Previous research analyzed the rapid tuition growth that occurred from the late 1980s to 2010. That research indicates that several key factors drove the rise in college tuition: large expansions in the federal student loan program, a dramatic increase in the college-earnings premium, steady increases in average parental income, and state support of public schools that did not keep pace with tuition. Where that analysis stops, this analysis begins, showing that tuition growth slowed markedly from 2010 to 2022. We highlight several factors contributing to this pivot, interpreting those factors ...
Briefing
Mortgage Spreads and the Yield Curve
Mortgage spreads — the 30-year mortgage fixed rate minus the 10-year Treasury rate — have a history of increasing sharply in times of economic stress. While often viewed as a measure of financial stress, I argue they are mostly explained by changes in expected mortgage duration arising from changes in the yield curve. Economic stress leads to a downward-sloping yield curve, which increases expected refinance activity, shortening mortgage durations. This shorter duration makes mortgages prices reflect short (rather than long) Treasury rates. But with a downward-sloping yield curve, this ...
Briefing
GameStop, AMC and the Self-Fulfilling Beliefs of Stock Buyers
The recent stock market gyrations of GameStop and AMC Entertainment illustrate that companies' fates can sometimes hinge on self-fulfilling beliefs. Pessimistic expectations can raise the specter of bankruptcy, while optimistic expectations can allow for survival and eventual success. We show how it is sometimes possible for small coalitions of buyers — such as those that formed on the online forum Reddit — to tip the balance in favor of an optimistic scenario. By doing so, a coalition can reap large profits and fundamentally improve a company's prospects.