A Natural Approach to Estimating the ‘Natural Rate’ of Unemployment
The unemployment rate is a widely viewed gauge of U.S. labor market slack or tightness. Because of structural changes to the labor market over time, assessments about slack/tightness require a reference point called the “natural rate of unemployment.”
Pandemic Pushed the U.S. into Recession … and Hourly Wages Rose?
The onset of COVID-19 in spring 2020 prompted an unprecedented rapid rise in the unemployment rate. However, a popular and widely cited wage measure—average hourly earnings (AHE)—rose sharply as the health crisis grew.
The measurement and behavior of uncertainty: evidence from the ECB Survey of Professional Forecasters
We use matched point and density forecasts of output growth and inflation from the ECB Survey of Professional Forecasters to derive measures of forecast uncertainty, forecast dispersion, and forecast accuracy. We construct uncertainty measures from aggregate density functions as well as from individual histograms. The uncertainty measures display countercyclical behavior, and there is evidence of increased uncertainty for output growth and inflation since 2007. The results also indicate that uncertainty displays a very weak relationship with forecast dispersion, corroborating the findings of ...
The effect of employee stock options on the evolution of compensation in the 1990s
Between 1995 and 1998, actual growth in compensation per hour (CPH) accelerated from approximately 2 percent to 5 percent. Yet as the labor market continued to tighten in 1999, CPH growth unexpectedly slowed. This article explores whether this aggregate "wage puzzle" can be explained by changes in the pay structure?specifically, by the increased use of employee stock options in the 1990s. The CPH measure captures these options on their exercise date, rather than on the date they are granted. By recalculating compensation per hour to reflect the options' value on the grant date, the ...
The homeownership gap
After rising for a decade, the U.S. homeownership rate peaked at 69 percent in the third quarter of 2006. Over the next two and a half years, as home prices fell in many parts of the country and the unemployment rate rose sharply, the homeownership rate declined by 1.7 percentage points. An important question is, how much more will this rate decline over the current economic downturn? To address this question, we propose the concept of the "homeownership gap" as a gauge of downward pressure on the homeownership rate. We define the homeownership gap as the difference between the ...
Payment changes and default risk: theimpact of refinancing on expected credit losses
This paper analyzes the relationship between changes in borrowers' monthly mortgage payments and future credit performance. This relationship is important for the design of an internal refinance program such as the Home Affordable Refinance Program (HARP). We use a competing risk model to estimate the sensitivity of default risk to downward adjustments of borrowers' monthly mortgage payments for a large sample of prime adjustable-rate mortgages. Applying a 26 percent average monthly payment reduction that we estimate would result from refinancing under HARP, we find that the cumulative ...
The Sustainability of First-Time Homeownership
In this post we take up the important question of the sustainability of homeownership for first-time buyers. The evaluation of public policies aimed at promoting the transition of individuals from renting to owning should depend not only on the degree to which such policies increase the number of first-time buyers, but also importantly on whether these new buyers are able to sustain their homeownership. If a buyer is unprepared to manage the financial responsibilities of owning a home and consequently must return to renting, then the household may have made little to no progress in wealth ...
First Impressions Can Be Misleading: Revisions to House Price Changes
An assiduous follower of the national house price charts that the New York Fed maintains on its web page may have noticed that we appear to be rewriting history as we update the charts every month. For example, last month we reported that the median twelve-month house price change across all counties for December 2012 was 3.68 percent. However, this month, we indicate that this same median change for December 2012 was instead 3.45 percent. Why the change? Was the earlier reported number a mistake that we simply corrected this month? If not, what explains the revision to the initial report?
Juvenile delinquent mortgages: bad credit or bad economy?
We study early default, defined as serious delinquency or foreclosure in the first year, among nonprime mortgages from the 2001 to 2007 vintages. After documenting a dramatic rise in such defaults and discussing their correlates, we examine two primary explanations: changes in underwriting standards that took place over this period and changes in the economic environment. We find that while credit standards were important in determining the probability of an early default, changes in the economy after 2004 - especially a sharp reversal in house price appreciation - were the more critical ...
Flexible Average Inflation Targeting and Inflation Expectations: A Look at the Reaction by Professional Forecasters
This Commentary examines the response of longer-run inflation expectations to the FOMC’s August 2020 announced switch to a flexible average inflation-targeting (FAIT) regime. The data indicate an upward shift in the lower end (below 2 percent) of the distribution of inflation expectations and a stronger anchoring of expectations around the 2 percent inflation objective following the announcement, evidence that is consistent with intended effects of the change in the monetary policy framework. To provide context, we also include a retrospective assessment of the response of inflation ...