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Working Paper
Policy Rules and Large Crises in Emerging Markets
Espino, Emilio; Kozlowski, Julian; Martin, Fernando M.; Sanchez, Juan M. (2023-10-14)
Emerging countries have increasingly adopted rules to discipline government policy. The COVID-19 shock led to widespread suspension and modification of these rules. We study rules and flexibility in a sovereign default model with domestic fiscal and monetary policies and long-term external debt. We find welfare gains from adopting monetary targets and debt limits during normal times. Though government policy cannot itself counteract fundamental shocks hitting the economy, the adoption of rules has a significant impact on policy, macroeconomic outcomes and welfare during large, unexpected ...
Working Papers , Paper 2022-018

Working Paper
Improving Sovereign Debt Restructurings
Dvorkin, Maximiliano; Sanchez, Juan M.; Sapriza, Horacio; Yurdagul, Emircan (2022-04-06)
The wave of sovereign defaults in the early 1980s and the string of debt crises in subsequent decades have fostered proposals involving policy interventions in sovereign debt restructurings. The global ﬁnancial crisis and the recent global pandemic have further reignited this discussion among academics and policymakers. A key question about these policy proposals for debt restructurings that has proved hard to handle is how they inﬂuence the behavior of creditors and debtors. We address this challenge by evaluating policy proposals in a quantitative sovereign default model that ...
Working Paper , Paper 22-06

Working Paper
Credit, bankruptcy, and aggregate fluctuations
Nakajima, Makoto; Rios-Rull, Jose-Victor (2014-10-20)
We ask two questions related to how access to credit affects the nature of business cycles. First, does the standard theory of unsecured credit account for the high volatility and procyclicality of credit and the high volatility and countercyclicality of bankruptcy filings found in U.S. data? Yes, it does, but only if we explicitly model recessions as displaying countercyclical earnings risk (i.e., rather than having all households fare slightly worse than normal during recessions, we ensure that more households than normal fare very poorly). Second, does access to credit smooth aggregate ...
Working Papers , Paper 14-31

Working Paper
Sovereign Debt Restructurings
Dvorkin, Maximiliano; Sapriza, Horacio; Sanchez, Juan M.; Yurdagul, Emircan (2018-06-25)
Sovereign debt crises involve debt restructurings characterized by a mix of face-value haircuts and maturity extensions. The prevalence of maturity extensions has been hard to reconcile with economic theory. We develop a model of endogenous debt restructuring that captures key facts of sovereign debt and restructuring episodes. While debt dilution pushes for negative maturity extensions, three factors are important in overcoming the effects of dilution and generating maturity extensions upon restructurings: income recovery after default, credit exclusion after restructuring, and regulatory ...
Working Papers , Paper 2018-13

Working Paper
The Persistence of Financial Distress.
Sanchez, Juan M.; Athreya, Kartik B.; Mustre-del-Rio, Jose (2017-11-27)
Using recently available proprietary panel data, we show that while many (35%) US consumers experience fi nancial distress at some point in the life cycle, most of the events of nancial distress are primarily concentrated in a much smaller proportion of consumers in persistent trouble. Roughly 10% of consumers are distressed for more than a quarter of the life cycle, and less than 10% of borrowers account for half of all distress events. These facts can be largely accounted for in a straightforward extension of a workhorse model of defaultable debt that accommodates a simple form of ...
Research Working Paper , Paper RWP 17-15

Journal Article
Understanding the Evolution of Student Loan Balances and Repayment Behavior: Do Institution Type and Degree Matter?
Brown, Meta; Zafar, Basit; Van der Klaauw, Wilbert; Chakrabarti, Rajashri (2019-12)
Student loan balances and delinquency rates have soared to unprecedented levels in recent years, forming what many commentators have termed a “student loan bubble” and creating a major public policy issue. Given the importance of student loans for human capital formation and economic growth, understanding student loans and repayment behavior is essential from a policy perspective. Yet research in this area has been limited. The authors seek to fill the gap by examining student loan performance over time by institution type and degree program. Using detailed data collected as part of ...
Economic Policy Review , Volume 25 , Issue Dec

Discussion Paper
Is Free College the Solution to Student Debt Woes? Studying the Heterogeneous Impacts of Merit Aid Programs
Chakrabarti, Rajashri; Nober, William; Van der Klaauw, Wilbert (2019-10-10)
The rising cost of a college education has become an important topic of discussion among both policymakers and practitioners. At least eleven states have recently introduced programs to make public two-year education tuition free, including New York, which is rolling out its Excelsior Scholarship to provide tuition-free four-year college education to low-income students across the SUNY and CUNY systems. Prior to these new initiatives, New York, had already instituted merit scholarship programs that subsidize the cost of college conditional on academic performance and in-state attendance. ...
Liberty Street Economics , Paper 20191010

Discussion Paper
Measuring Racial Disparities in Higher Education and Student Debt Outcomes
Chakrabarti, Rajashri; Nober, William; Van der Klaauw, Wilbert (2020-07-08)
Across the United States, the cost of all types of higher education has been rising faster than overall inflation for more than two decades. Despite rising costs, aggregate undergraduate enrollment rose steadily between 2000 and 2010 before leveling off and dipping slightly to its current level. Rising college costs have steadily increased dependence on student debt for college financing, with many students and parents turning to federal and private loans to pay for higher education. An earlier post in this series reported that borrowers in majority Black areas have higher student loan ...
Liberty Street Economics , Paper 20200708c

Working Paper
Mortgage Prepayment, Race, and Monetary Policy
Gerardi, Kristopher S.; Willen, Paul S.; Zhang, David Hao (2020-09-01)
This paper documents large differences in mortgage prepayment behavior across racial and ethnic groups in the United States, which have significant implications for monetary policy, inequality, and pricing. Using a novel data set that combines administrative data on mortgage performance with information on race and ethnicity, we show that Black and Hispanic white borrowers have significantly lower prepayment rates compared with Non-Hispanic white borrowers, holding income, credit score, and equity constant. This gap is on the order of 50 percent and largely reflects different sensitivities ...
Working Papers , Paper 20-7

Working Paper
The Persistence of Financial Distress
Sanchez, Juan M.; Athreya, Kartik B.; Mustre-del-Rio, Jose (2017-11-09)
Using recently available proprietary panel data, we show that while many (35%) US consumers experience financial distress at some point in the life cycle, most of the events of financial distress are primarily concentrated in a much smaller proportion of consumers in persistent trouble. Roughly 10% of consumers are distressed for more than a quarter of the life cycle, and less than 10% of borrowers account for half of all distress events. These facts can be largely accounted for in a straightforward extension of a workhorse model of defaultable debt that accommodates a simple form of ...
Working Paper , Paper 17-14

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