Falling reserve balances and the federal funds rate
The growth of "sweeps"--a banking practice in which depository institutions shift funds out of customer accounts subject to reserve requirements--has reduced the required balances held by banks in their accounts at the Federal Reserve. This development could lead to greater volatility in the federal funds rate as banks try to manage their accounts with very low balances. An analysis of the evidence suggests that the volatility of the funds rate is rising slightly, but not enough to disrupt the federal funds market or affect the implementation of monetary policy.
Mortgage refinancing and the concentration of mortgage coupons
Because of the concentrated distribution of interest rates on outstanding mortgages, modest interest rate declines in 1997 and 1998 made refinancing a smart choice for a record number of homeowners. In addition, the strong economy and the age of mortgage loans likely contributed to the surge in refinancing activity.
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.
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
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 ...
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 ...
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 ...