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Discussion Paper
Economic distress and resurgence in U.S. central cities: concepts, causes, and policy levers
This paper provides a review of the literature on U.S. central city growth and distress during the second half of the twentieth century. It finds that city growth tended to be higher in metropolitan areas with favorable weather, higher growth, and greater human capital, while distress was strongly correlated with city-level manufacturing legacy. The article affirms that distress has been highly persistent, but that some cities have achieved resurgence through a combination of strong leadership, collaboration across sectors and institutions, clear and broad-based strategies, and significant ...
Discussion Paper
Account-to-account electronic money transfers: recent developments in the United States
This paper reviews recent developments in online and mobile banking in the United States that provide bank account holders with low-cost interfaces to manage account-to-account electronic money transfers. The paper analyzes the emerging decentralized market in which A2A money transfers are becoming available in the United States and compares it with the A2A market in other countries. The paper constructs analytical examples to explain and evaluate the structure of the emerging U.S. market and discusses possible policy actions that may enhance the use of A2A money transfers in the United ...
Discussion Paper
Reviving mortgage securitization: lessons from the Brady Plan and duration analysis
We review the period of the Latin American debt crisis in order to draw policy analogies from that experience for current U.S. credit securitization markets. During the earlier episode the Brady Plan used a zero-coupon U.S. Treasury security to provide a credit enhancement for the troubled assets. This revitalized the market for Latin American debt by: (1) ameliorating the dual solvency problem that affected both creditors and debtors, and (2) revealing asset prices as dominated by risk fundamentals rather than by short-run factors. The cost of the Brady plan was quite small relative to its ...
Discussion Paper
Alternative measures of the Federal Reserve banks' cost of equity capital
The Monetary Control Act of 1980 requires the Federal Reserve System to provide payment services to depository institutions through the twelve Federal Reserve Banks at prices that fully reflect the costs a private-sector provider would incur, including a cost of equity capital (COE). Although Fama and French (1997) conclude that COE estimates are ?woefully? and ?unavoidably? imprecise, the Reserve Banks require such an estimate every year. We examine several COE estimates based on the Capital Asset Pricing Model (CAPM) and compare them using econometric and materiality criteria. Our results ...
Discussion Paper
Wives' work and family income mobility
Over the past 30 years, married women in the United States have significantly increased their labor market activity and become an integral factor in their families? ongoing economic wellbeing. This change raises questions about the economic impact of two-earner families becoming the norm. Do American families now need both a working husband and a working wife to have any hope of getting ahead or to keep from falling behind? How much does a wife?s labor market activity (participation, hours, and earnings) matter in her family?s ability to make income gains, hold its place relative to other ...
Discussion Paper
Wealth shocks and macroeconomic dynamics
The effect of wealth on consumption is an issue of longstanding interest to economists. Analysts believe that fluctuations in household wealth have driven major swings in economic activity. This paper considers so-called wealth effects?the impact of changes in wealth on household consumption and the overall macroeconomy. There is an extensive existing literature on wealth effects, but there are also many unanswered issues and questions. This paper reviews the important issues regarding the role wealth plays in the macroeconomy and argues that there is a need for much more wealth effect ...
Discussion Paper
Shifting confidence in homeownership: the Great Recession
The authors study the responses to several questions related to real estate that were added to the Michigan Survey of Consumers in July and August 2011. In particular, they asked about attitudes toward renting versus buying a home, about commuting, and about how much to spend on a mortgage. By matching the results to data (at the ZIP-code level) about relative house price declines during the recent crisis, they can study the relationship between the U.S. housing crash and the attitudes of individual consumers. They find that younger respondents are relatively less confident about ...
Discussion Paper
Why did so many people make so many ex post bad decisions?: the causes of the foreclosure crisis
This paper presents 12 facts about the mortgage market. The authors argue that the facts refute the popular story that the crisis resulted from financial industry insiders deceiving uninformed mortgage borrowers and investors. Instead, they argue that borrowers and investors made decisions that were rational and logical given their ex post overly optimistic beliefs about house prices. The authors then show that neither institutional features of the mortgage market nor financial innovations are any more likely to explain those distorted beliefs than they are to explain the Dutch tulip bubble ...
Discussion Paper
Social Security and unsecured debt
Most young households simultaneously hold both unsecured debt on which they pay an average of 10 percent interest and social security wealth on which they earn less than 2 percent. We document this fact using data from the Panel Study of Income Dynamics. We then consider a life-cycle model with ?tempted? households, who find it impossible to commit to an optimal consumption plan and ?disciplined? households who have no such problem, and we explore ways to reduce this inefficiency. We show that allowing households to use social security wealth to pay off debt while exempting young households ...
Discussion Paper
Why don’t most merchants use price discounts to steer consumer payment choice?
Recent legislation and court settlements in the United States allow merchants to use price discounts to steer customers to pay with means of payment that are less costly to merchants. This paper suggests one method of calculating merchants? change in profit associated with giving price discounts to buyers who pay with debit cards and cash. We use data from the pilot of the Boston Fed?s Diary of Consumer Payment Choice to compute rough estimates of the expected net cost reduction by merchant type that may result from debit card and cash price discounts. We find that steering consumers to debit ...