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Author:Dynan, Karen E. 

Working Paper
Does stock market wealth matter for consumption?

This paper explores the household behavior that underlies the link between wealth and consumption at the aggregate level. One possibility is that changes in wealth directly cause changes in consumption through their effect on households' contemporaneous budget sets; another possibility is that they merely predict changes in consumption because they signal changes in future income. Based on analysis of household-level data from the Consumer Expenditure Survey, we find that direct wealth effects begin to show up relatively quickly and continue to boost consumption growth for a number of ...
Finance and Economics Discussion Series , Paper 2001-23

Newsletter
Helping Homeowners During the Covid-19 Pandemic: Lessons from the Great Recession

The Covid-19 public health crisis has sharply reduced the earnings of millions of U.S. households, following the severe curtailment of economic activity needed to contain the spread of the virus. Meanwhile, households continue to confront their ongoing financial obligations. The ability of households to manage these obligations has important consequences for the speed at which the U.S. economy can recover from the current crisis. Households that are wiped out financially in the coming months will not be in a position to strongly resume spending once the virus containment issues have passed. ...
Chicago Fed Letter , Issue 443 , Pages 9

Working Paper
Designing loan modifications to address the mortgage crisis and the making home affordable program

Delinquencies on residential mortgages and home foreclosures have risen dramatically in the past couple of years. The mortgage losses triggered a broad-based financial crisis and severe recession, which, in turn, exacerbated the initial financial distress faced by homeowners. Although servicers increased their loss mitigation efforts as defaults began to mount, foreclosures continued to occur in cases where both the borrower and investor would be better off if such an outcome were avoided. The U.S. government has engaged in a number of initiatives to reduce such foreclosures. This paper ...
Finance and Economics Discussion Series , Paper 2009-43

Working Paper
The incentives of mortgage servicers: myths and realities

As foreclosure initiations have soared over the past couple of years, many have questioned whether mortgage servicers have the right incentives to work out troubled subprime mortgages so that borrowers can avoid foreclosure and remain in their homes. Some critics claim that because servicers, unlike investors, do not bear the losses associated with foreclosure, they have little incentive to modify troubled loans by reducing interest rates or principal, or by extending the term. Our analysis suggests that while servicers have substantially improved borrower outreach and increased loss ...
Finance and Economics Discussion Series , Paper 2008-46

Conference Paper
Financial innovation and the Great Moderation: what do household data say?

Aggressive deregulation of the household debt market in the early 1980s triggered innovations that greatly reduced the required home equity of U.S. households, allowing them to cash-out a large part of accumulated equity. In 1982, home equity equaled 71 percent of GDP; so this generated a borrowing shock of huge macroeconomic proportions. The combination of increasing household debt from 43 to 56 percent of GDP with high interest rates during the 1982-1990 period is consistent with such a shock to households? demand for funds. This paper uses a quantitative general equilibrium model of ...
Proceedings , Issue Nov

Working Paper
Unemployment risk and precautionary wealth: evidence from households' balance sheets

Recent empirical work on the strength of precautionary saving has yielded widely varying conclusions. The mixed findings may reflect a number of difficulties in proxying uncertainty, executing instrumental variables estimation, and incorporating theoretical restrictions into empirical models. For each of these problems, this paper uses existing best-practice techniques and some new strategies to relate unemployment probabilities from the Current Population Survey to net worth data from the Survey of Consumer Finances. We find that increases in unemployment risk do not boost saving by ...
Finance and Economics Discussion Series , Paper 1999-15

Working Paper
Do provisional estimates of output miss economic turning points?

Initial estimates of aggregate output and its components are based on very incomplete source data, so they may not fully capture shifts in economic conditions. In particular, if those estimates are based partly on trends in preceding quarters, provisional estimates may overstate activity when actual output is decelerating and understate it when actual output is accelerating. We examine this issue using the Real Time Data Set for Macroeconomists, which contains contemporaneous estimates of GNP or GDP and its components beginning in the late 1960s, as well as financial-market information and ...
Finance and Economics Discussion Series , Paper 2001-52

Working Paper
Can financial innovation help to explain the reduced volatility of economic activity?

The stabilization of economic activity in the mid 1980s has received considerable attention. Research has focused primarily on the role played by milder economic shocks, improved inventory management, and better monetary policy. This paper explores another potential explanation: financial innovation. Examples of such innovation include developments in lending practices and loan markets that have enhanced the ability of households and firms to borrow and changes in government policy such as the demise of Regulation Q. We employ a variety of simple empirical techniques to identify links between ...
Finance and Economics Discussion Series , Paper 2005-54

Working Paper
Measuring household wealth in the Panel Study of Income Dynamics: the role of retirement assets

While the Panel Study of Income Dynamics (PSID) has much to offer researchers studying household behavior, one limitation is that its summary measure of wealth is not as broad as those of other commonly used surveys, such as the Survey of Consumer Finances (SCF), because it does not include the value of defined-contribution (DC) pensions. This paper describes the pension data available in the PSID and shows how they can be used to create a more comprehensive picture of household finances. We then compare various measures derived from these data with their counterparts from the SCF. Along a ...
Working Papers , Paper 19-6

Working Paper
Habit formation in consumer preferences: evidence from panel data

Working Paper Series / Economic Activity Section , Paper 143

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