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Report
Housing busts and household mobility: an update
This paper provides updated estimates of the impact of three financial frictions?negative equity, mortgage lock-in, and property tax lock-in?on household mobility. We add the 2009 wave of the American Housing Survey (AHS) to our sample and also create an improved measure of permanent moves in response to Schulhofer-Wohl?s (2011) critique of our earlier work (2010). Our updated estimates corroborate our previous results: Negative equity reduces household mobility by 30 percent, and $1,000 of additional mortgage or property tax costs reduces household mobility by 10 to 16 percent. ...
Journal Article
From Gaps to Growth: Equity as a Path to Prosperity
The pandemic has shined a vivid light on the deep roots of economic inequity, showing that the rules are not the same for everyone. Persistent, unfair gaps in opportunity and well-being across different groups in our society limit people’s potential. Eliminating these inequities could substantially boost GDP and increase the economy’s long-run rate of growth, leading to greater prosperity for all.
Journal Article
“Bouncing Forward” from Disasters on Hawaiʻi’s Big Island: Lessons for Equitable Recovery and Future Resilience
Recovery planning and implementation on the island of Hawaiʻi following a federally declared disaster provides an example of equitable, forward-looking disaster preparation and resilience. Community development professionals in other geographies can learn from the way planners and nonprofits used a regional equity approach to improving household and community resilience, broke down silos to have flexible funding from multiple sources ready for future disasters, and worked to build community through “resilience hubs” that provide disaster-related and ongoing services that help promote ...
Working Paper
A margin call gone wrong: Credit, stock prices, and Germany's Black Friday 1927
Leverage is often seen as villain in financial crises. Sudden deleveraging may lead to fire sales and price pressure when asset demand is downward-sloping. This paper looks at the effects of changes in leverage on asset prices. It provides a historical case study where a large, well-identified shock to margin credit disrupted the German stock market. In May 1927, the German central bank forced banks to cut margin lending to their clients. However, this shock affected banks differentially; the magnitude of credit change differed across banks. Using the strong connections between banks and ...
Working Paper
Financial market reactions to the Russian invasion of Ukraine
This article analyzes financial market reactions to the Russia-Ukraine war with a focus on the opening weeks. Markets did not completely anticipate the war and asset price reactions strengthened from the first week—when there were hopes for a quick resolution—to the second week, when prices generally peaked and began to partially revert to pre-war values. Exposure to commodity trade and trade with Russia-Ukraine determined market perceptions of the riskiness of equity and foreign exchange assets. Credit default swap prices on sovereign debt and breakeven inflation rates indicate that ...
Report
Vesting and control in venture capital contracts
Vesting of equity payments to an entrepreneur, which is a form of time-contingent compensation, is very common in venture capital contracts. Empirical research suggests that vesting is used to help overcome asymmetric information and agency problems. We show in a theoretical model that vesting equity to an entrepreneur over a long period of time acts as a screening device against a bad entrepreneur type. But incomplete contracts due to hold-up by the venture capitalist imply that equity compensation, in the form of either short-term or long-term vesting, cannot provide standard contractible ...
Journal Article
Housing busts and household mobility: an update
Interest in the relationship between household mobility and financial frictions, especially frictions associated with negative home equity, has grown following the recent boom and bust in U.S. housing markets. With prices falling 30 percent nationally, negative equity greatly expanded across many markets. More recently, the decline in mortgage rates along with various policy interventions to encourage refinancing at historically low rates suggests the need to also revisit mortgage interest rate lock-in effects, which are likely to become important once Federal Reserve interest rate policy ...
Journal Article
Banking on Basel : an alternative for capital requirements
Equity capital represents a bank?s net worth?the difference between its assets and liabilities. Put another way, it?s the value of assets financed by the bank?s owners, rather than depositors or other sources of funds. Capital serves as a buffer to absorb losses and prevent failures and figures prominently in the banking industry?s ability to lend.
Speech
From Gaps to Growth: Equity as a Path to Prosperity
Presentation to UCLA Anderson Forecast Webinar, by Mary C. Daly, President and Chief Executive Officer, Federal Reserve Bank of San Francisco, September 29, 2021
Speech
Basel and the wider financial stability agenda
Remarks at the 2010 Institute of International Finance Annual Membership Meeting, Washington, D.C.