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Briefing
Assessing GSE Mortgage Portfolios’ Exposure to Past and Future Flood Risk
This article evaluates the exposure of government-sponsored enterprises' (GSEs) mortgage portfolios to flood risks as projected by the First Street Foundation and analyzes the realized impact of Hurricane Irma on mortgage defaults. The analysis leverages extensive GSE data spanning from 1999 to 2023 and utilizes risk projections through 2050 to provide a comprehensive view of both potential future risks and actual past outcomes.
Working Paper
Charting the Course: How Does Information about Sea Level Rise Affect the Willingness to Migrate?
An important yet less studied factor in determining the extent of adaptation to climate change is information: are people adequately informed about their vulnerability to future climate-related risks, and does their willingness to adapt depend on this knowledge? Focusing on how communication about projected sea level rise (SLR) affects the willingness to migrate, we implemented a large randomized control survey experiment with a nationally representative sample of more than 7,000 respondents across all provinces in Vietnam. We randomly assign respondents to different information treatments. ...
Working Paper
Bubbly Recessions
We develop a tractable rational bubbles model with financial frictions, downward nominal wage rigidity, and the zero lower bound. The interaction of financial frictions and nominal rigidities leads to a "bubbly pecuniary externality," where competitive speculation in risky bubbly assets can result in excessive investment booms that precede inefficient busts. The collapse of a large bubble can push the economy into a "secular stagnation" equilibrium, where the zero lower bound and the nominal wage rigidity constraint bind, leading to a persistent and inefficient recession. We evaluate a ...
Working Paper
Race and Environmental Worries
Working Paper
Asset Pledgeability and Endogenously Leveraged Bubbles
We develop a simple model of defaultable debt and rational bubbles in the price of an asset, which can be pledged as collateral in a competitive credit pool. When the asset pledgeability is low, the down payment is high, and bubble investment is unleveraged, as in a standard rational bubble model. When the pledgeability is high, the down payment is low, making it easier for leveraged borrowers to invest in the bubbly asset. As loans are packaged together into a competitive pool, the pricing of individual default risk may facilitate risk-taking. In equilibrium, credit-constrained borrowers may ...
Working Paper
Regressive Welfare Effects of Housing Bubbles
We analyze the welfare effects of asset bubbles in a model with income inequality and financial friction. We show that a bubble that emerges in the value of housing, a durable asset that is fundamentally useful for everyone, has regressive welfare effects. By raising the housing price, the bubble benefits high-income savers but negatively affects low-income borrowers. The key intuition is that, by creating a bubble in the market price, savers' demand for the housing asset for investment purposes imposes a negative externality on borrowers, who only demand the housing asset for utility ...
Working Paper
The Costs of (sub)Sovereign Default Risk: Evidence from Puerto Rico
Puerto Rico's unique characteristics as a U.S. territory allow us to examine the channels through which (sub)sovereign default risk can have real effects on the macroeconomy. Post-2012, during the period of increased default probabilities, the cointegrating relationship between real activity in Puerto Rico and the U.S. mainland breaks down and Puerto Rico spirals into a significant decline. We exploit the cross-industry variation in default risk exposure to identify the impact of changes in default risk on employment. The evidence suggests that there are significantly higher employment growth ...
Working Paper
Temperature and Growth: A Panel Analysis of the United States
We document that seasonal temperatures have significant and systematic effects on the U.S. economy, both at the aggregate level and across a wide cross-section of economic sectors. This effect is particularly strong for the summer: a 1 degree F increase in the average summer temperature is associated with a reduction in the annual growth rate of state-level output of 0.15 to 0.25 percentage points. We combine our estimates with projected increases in seasonal temperatures and find that rising temperatures could reduce U.S. economic growth by up to one-third over the next century.
Briefing
A New Look at the Effects of Weather Shocks Over Time
This article examines the relationship between severe weather shocks and the U.S. macroeconomy from 1963 to 2019, applying a novel empirical approach to high-frequency data. We find weather shocks are growing in their influence on key economic variables, such as industrial output, unemployment and inflation.