Centrality-based Capital Allocations
This paper looks at the effect of capital rules on a banking system that is connected through correlated credit exposures and interbank lending. Keeping total capital in the system constant, the reallocation rules, which combine individual bank characteristics and interconnectivity measures of interbank lending, are to minimize a measure of systemwide losses. Using the detailed German Credit Register for estimation, we find that capital rules based on eigenvectors dominate any other centrality measure, saving about 15 percent in expected bankruptcy costs.
AUTHORS: Craig, Ben R.; Raupach, Peter; Alter, Adrian
Internal Migration in the United States: A Comparative Assessment of the Utility of the Consumer Credit Panel
This paper demonstrates that credit bureau data, such as the Federal Reserve Bank of New York Consumer Credit Panel/Equifax (CCP), can be used to study internal migration in the United States. It is comparable to, and in some ways superior to, the standard data used to study migration, including the American Community Survey (ACS), the Current Population Survey (CPS), and the Internal Revenue Service (IRS) county-to-county migration data. CCP-based estimates of migration intensity, connectivity, and spatial focusing are similar to estimates derived from the ACS, CPS, and IRS data. The CCP can measure block-to-block migration and it is available at quarterly rather than annual frequencies. Migrants? precise origins are not available in public versions of the ACS, CPS, or IRS data. We report measures of migration from the CCP data at finer geographies and time intervals. Finally, we disaggregate migration flows into first-, second-, and higher-order moves. Individual-level panels in the CCP make this possible, giving the CCP an additional advantage over the ACS, CPS, or publicly available IRS data.
AUTHORS: Johnson, Janna; Whitaker, Stephan; DeWaard, Jack
Big Data versus a Survey
Economists are shifting attention and resources from work on survey data to work on ?big data.? This analysis is an empirical exploration of the trade-offs this transition requires. Parallel models are estimated using the Federal Reserve Bank of New York Consumer Credit Panel/Equifax and the Survey of Consumer Finances. After adjustments to account for different variable definitions and sampled populations, it is possible to arrive at similar models of total household debt. However, the estimates are sensitive to the adjustments. Little similarity is observed in parallel models of nonmortgage debt. While surveys intentionally collect theoretically related variables, it may be necessary to merge external data into commercial big data. In this example, some education and income measures are successfully integrated with the big data, but other external aggregates fail to adequately substitute for survey responses. Big data offers sample sizes, frequencies, and details that surveys cannot match. However, this example illustrates why caution is appropriate when attempting to substitute big data for a carefully executed survey.
AUTHORS: Whitaker, Stephan
Internal Migration in the United States: A Comprehensive Comparative Assessment of the Consumer Credit Panel
We introduce and provide the first comprehensive comparative assessment of the Federal Reserve Bank of New York/Equifax Consumer Credit Panel (CCP) as a valuable and underutilized data set for studying internal migration within the United States. Relative to other data sources on US internal migration, the CCP permits highly detailed cross-sectional and longitudinal analyses of migration, both temporally and geographically. We compare cross-sectional and longitudinal estimates of migration from the CCP to similar estimates derived from the American Community Survey, the Current Population Survey, Internal Revenue Service data, the National Longitudinal Survey of Youth, the Panel Study of Income Dynamics, and the Survey of Income and Program Participation. Our results establish the comparative utility and illustrate some of the unique advantages of the CCP relative to other data sources on US internal migration. We conclude by identifying some profitable directions for future research on US internal migration using the CCP, as well as reminding readers of the strengths and limitations of these data. More broadly, this paper contributes to discussions and debates on improving the availability, quality, and comparability of migration data.
AUTHORS: Whitaker, Stephan; Johnson, Janna; DeWaard, Jack
Assessing the macroeconomic impact of bank intermediation shocks: a structural approach
We take a structural approach to assessing the empirical importance of shocks to the supply of bank-intermediated credit in affecting macroeconomic fluctuations. First, we develop a theoretical model to show how credit supply shocks can be transmitted into disruptions in the production economy. Second, we use the unique micro-banking data to identify and support the model's key mechanism. Third, we find that the output effect of credit supply shocks is not only economically and statistically significant but also consistent with the vector autogression evidence. Our mode estimation indicates that a negative one-standard-deviation shock to credit supply generates a loss of output by 1 percent.
AUTHORS: Chen, Kaiji; Zha, Tao
The inflation expectations of firms: what do they look like, are they accurate, and do they matter?
The purpose of this paper is to answer the three questions in the title. Using a large monthly survey of businesses, we investigate the inflation expectations and uncertainties of firms. We document that, in the aggregate, firm inflation expectations are very similar to the predictions of professional forecasters for national inflation statistics, despite a somewhat greater heterogeneity of expectations that we attribute to the idiosyncratic cost structure firms face. We also show that firm inflation expectations bear little in common with the ?prices in general? expectations reported by households. Next we show that, during our three-year sample, firm inflation expectations appear to be unbiased predictors of their year-ahead observed (perceived) inflation. We also show that firms know what they don?t know?that the accuracy of firm inflation expectations is significantly and negatively related to their uncertainty about future inflation. And lastly, we demonstrate, by way of a cross-sectional Phillips curve, that firm inflation expectations are a useful addition to a policymaker?s information set. We show that firms? inflation perceptions depend (importantly) on their expectations for inflation and their perception of firm-level slack.
AUTHORS: Bryan, Michael F.; Meyer, Brent; Parker, Nicholas B.
Why are big banks getting bigger?
The U.S. banking sector has become substantially more concentrated since the 1990s, raising questions about both the causes and implications of this consolidation. We address these questions using nonparametric empirical methods that characterize dynamic power law distributions in terms of two shaping factors ? the reversion rates (a measure of crosssectional mean reversion) and idiosyncratic volatilities of assets for different size-ranked banks. Using quarterly data for subsidiary commercial banks and thrifts and their parent bank-holding companies, we show that the greater concentration of U.S. bank-holding company assets is a result of lower mean reversion, a result consistent with policy changes such as interstate branching deregulation and the repeal of Glass-Steagall. In contrast, the greater concentration of both U.S. commercial bank and thrift assets is a result of higher idiosyncratic volatility, yet, idiosyncratic volatility of parent bank-holding company assets fell. This contrast suggests that diversification through non-banking activities has reduced the idiosyncratic asset volatilities of the largest bank-holding companies and affected systemic risk.
AUTHORS: Fernholz, Ricardo T.; Koch, Christoffer
Heaping at Round Numbers on Financial Questions : The Role of Satisficing
Survey responses to quantitative financial questions frequently display strong patterns of heaping at round numbers. This paper uses two studies to examine variation in rounding across questions and by individual characteristics. Rounding was more common for respondents low in ability, for respondents low in motivation, and for more difficult questions, all consistent with theories of satisficing. Questions that require more difficult information retrieval and integration of information exhibit more heaping. The use of records, which lowers task difficulty, reduces rounding as well. Higher episodic memory is associated with less rounding, and standard measures of motivation are negatively associated with rounding. These relationships, along with the fact that longer response latencies are associated with less rounding, all support the idea that rounding is a manifestation of satisficing on open-ended financial questions. Rounding patterns also appear remarkably similar across the two studies, despite being fielded in different modes and employing different question order and wording.
AUTHORS: Hsu, Joanne W.; Gideon, Michael; Helppie-McFall, Brooke
Missing Import Price Changes and Low Exchange Rate Pass-Through
A large body of empirical work has found that exchange rate movements have only modest effects on inflation. However, the response of an import price index to exchange rate movements may be underestimated because some import price changes are missed when constructing the index. We investigate downward biases that arise when items experiencing a price change are especially likely to exit or to enter the index. We show that, in theoretical pricing models, entry and exit have different implications for the timing and size of these biases. Using Bureau of Labor Statistics (BLS) microdata, we derive empirical bounds on the magnitude of these biases and construct alternative price indexes that are less subject to selection effects. Our analysis suggests that the biases induced by selective exits and entries do not materially alter the literature?s view that pass-through to U.S. import prices is low over the short to medium term horizons that are most useful for both forecasting and differentiating amongst economic models.
AUTHORS: Gagnon, Etienne; Vigfusson, Robert J.; Mandel, Benjamin R.
Improving the Accuracy of Economic Measurement with Multiple Data Sources: The Case of Payroll Employment Data
This paper combines information from two sources of U.S. private payroll employment to increase the accuracy of real-time measurement of the labor market. The sources are the Current Employment Statistics (CES) from BLS and microdata from the payroll processing firm ADP. We briefly describe the ADP-derived data series, compare it to the BLS data, and describe an exercise that benchmarks the data series to an employment census. The CES and the ADP employment data are each derived from roughly equal-sized samples. We argue that combining CES and ADP data series reduces the measurement error inherent in both data sources. In particular, we infer "true" unobserved payroll employment growth using a state-space model and find that the optimal predictor of the unobserved state puts approximately equal weight on the CES and ADP-derived series. Moreover, the estimated state contains information about future readings of payroll employment.
AUTHORS: Cajner, Tomaz; Crane, Leland; Decker, Ryan; Hamins-Puertolas, Adrian; Kurz, Christopher J.