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Partisan bias in inflation expectations
Oliver Bachmann et al.
Public Choice, March 2021, Pages 513-536
Abstract:
We examine partisan bias in inflation expectations. Our dataset includes inflation expectations of the New York Fed’s Survey of Consumer Expectations over the period June 2013 to June 2018. The results show that inflation expectations were 0.46% points higher in Republican-dominated than in Democratic-dominated US states when Barack Obama was US president. Compared to inflation expectations in Democratic-dominated states, inflation expectations in Republican-dominated states declined by 0.73% points when Donald Trump became president. We employ the Blinder-Oaxaca decomposition method to disentangle the extent to which political ideology and other individual characteristics predict inflation expectations: around 25% of the total difference between inflation expectations in Democratic-dominated versus Republican-dominated states is based on how partisans respond to changes in the White House’s occupant (partisan bias). The results also corroborate the belief that voters’ misperceptions of economic conditions decline when the president belongs to the party that voters support.
Fifty Shades of QE: Comparing Findings of Central Bankers and Academics
Brian Fabo et al.
Journal of Monetary Economics, forthcoming
Abstract:
We compare the findings of central bank researchers and academic economists regarding the macroeconomic effects of quantitative easing (QE). We find that central bank papers find QE to be more effective than academic papers do. Central bank papers report larger effects of QE on output and inflation. They also report QE effects on output that are more significant, both statistically and economically, and they use more positive language in the abstract. Central bank researchers who report larger QE effects on output experience more favorable career outcomes. A survey of central banks reveals substantial involvement of bank management in research production.
How Do Business Owners Respond to a Tax Cut? Examining the 199A Deduction for Pass-through Firms
Lucas Goodman et al.
NBER Working Paper, April 2021
Abstract:
We consider the short-run responses of businesses and their owners to the introduction of Section 199A, a deduction implemented in 2018 that reduced the effective tax rate on pass-through business income. We study the deduction using several datasets derived from de-identified tax records of individuals and businesses. Overall, we do not find an increase in 2018 in business income likely to be eligible for the deduction, either in the time series or among firms with greater exposure to the deduction due to plausibly exogenous characteristics. We additionally examine specific hypothesized margins of adjustment. We find that partnerships (one type of pass-through business) reduce compensation paid to owners, in line with the incentives created by 199A, but that S corporations (another type of pass-through business) mostly do not. Additionally, we do not find that workers - whether new hires or current employees - switch from employee to contractor status to claim the new deduction. Finally, we find no evidence of changes in real economic activity as measured by physical investment, wages to non-owners, or employment of nonowners, though this analysis is underpowered in the short-run.
The Economic Impact of Recession Announcements
Andrew Eggers, Martin Ellison & Sang Seok Lee
Journal of Monetary Economics, forthcoming
Abstract:
The convention in the news media is to announce a recession if a country experiences two consecutive quarters of negative growth. We exploit the arbitrary threshold implied by this practice to identify the economic impact of recession announcements through a Regression Discontinuity Design (RDD). Estimation results show that news of a recession leads to a discontinuous fall in consumer confidence, consumption growth and final estimates of GDP growth in a panel of countries. The effect is large, robust and statistically significant.
The Financial Restitution Gap in Consumer Finance: Insights from Complaints Filed with the CFPB
Charlotte Haendler & Rawley Heimer
Boston College Working Paper, January 2021
Abstract:
Consumers seek restitution for disputed financial services by filing complaints with the Consumer Financial Protection Bureau (CFPB). We find that filings from low-socioeconomic (i.e., low-income and African American) zip codes were 30% less likely to be resolved with the consumer receiving financial restitution. At the same time, low- and high-socioeconomic zip codes submitted an equal share of the CFPB complaints. The socioeconomic gap in financial restitution was scarcely present under the Obama administration, but grew substantially under the Trump administration. We attribute the change in financial restitution under different political regimes to companies anticipating a more industry-friendly CFPB, as well as to the more industry-friendly leadership of the CFPB achieving less financial restitution for low-socioeconomic filers. The financial restitution gap cannot be explained by differences in product usage nor the quality of complaints, which we measure using textual analysis.
Do Credit Unions Serve the Underserved?
Pankaj Maskara & Florence Neymotin
Eastern Economic Journal, April 2021, Pages 184-205
Abstract:
The tax exempt status enjoyed by credit unions is based in part upon such institutions providing financial services to individuals who are traditionally underserved by conventional banking institutions. Rather than relying upon an abstract measure of underserved status, we instead empirically estimate the probability that a household does not have an account with a traditional bank. We then use this information to determine whether individuals with reduced access to banking services are also more likely to belong to credit unions. We find that underserved households are less likely, rather than more likely, to use the services of credit unions.
Lehman's Lemons: Do Career Disruptions Matter for the Top 5%?
Anastassia Fedyk & James Hodson
University of California Working Paper, April 2021
Abstract:
How resilient are high-skilled, white collar workers? We exploit a uniquely comprehensive dataset of individual-level resumes of bank employees and the setting of the Lehman Brothers bankruptcy to estimate the effect of an unanticipated shock on the career paths of mobile and high skilled labor. We find evidence of short-term effects that largely dissipate over the course of the decade and that touch only the senior-most employees. We match each employee of Lehman Brothers in January 2008 to the most similar employees at Goldman Sachs, Morgan Stanley, Deutsche Bank, and UBS based on job positions, skills, education, and demographics. By 2019, the former Lehman Brothers employees are 2% more likely to have experienced at least a six-months-long break from reported employment and 3% more likely to have left the financial services industry. However, these effects concentrate among the senior individuals such as vice presidents and managing directors and are absent for junior employees such as analysts and associates. Furthermore, in terms of subsequent career growth, junior employees of Lehman Brothers fare no worse than their counterparts at the other banks. Analysts and associates employed at Lehman Brothers in January 2008 have equal or greater likelihoods of achieving senior roles such as managing director in existing enterprises by January 2019 and are more likely to found their own businesses.
Did technology contribute to the housing boom? Evidence from MERS
Stefan Lewellen & Emily Williams
Journal of Financial Economics, forthcoming
Abstract:
We examine the effects of the Mortgage Electronic Registration System, or MERS, on mortgage origination volumes and foreclosure rates prior to the Great Recession. MERS was introduced in the late 1990s and significantly reduced the cost and time associated with secondary mortgage sales. Using novel data from the Massachusetts Registry of Deeds, we show that the introduction of MERS led to an expansion in mortgage credit supply that was primarily fueled by nonbank lenders originating mortgages to low-income borrowers. We also find that foreclosure rates were higher on these mortgages. Our paper provides a new explanation for the credit supply increases observed prior to the 2008 financial crisis and for the disproportionate supply increase observed in low-income areas.
Appraisal overvaluation: Evidence of price adjustment bias in sales comparisons
Yanling Mayer & Frank Nothaft
Real Estate Economics, forthcoming
Abstract:
Home appraisal came under scrutiny for contributing to the home‐price bubble and enabling the origination of risky mortgages that led to the post‐2006 foreclosure crisis. Subsequent regulations tried to minimize or eliminate conflicts of interest and improve valuations. Nonetheless, our study of appraisals completed in 2015 and 2016 find that appraisal bias still occurred. Our analysis delves into the underlying appraisal development to identify causes of appraisal bias. Contributing factors are that comps are generally higher valued than the subject property, and appraisers are more likely to comparatively adjust upward lower priced comps but less likely to adjust downward higher priced comps.
Surviving the Fintech Disruption
Wei Jiang et al.
NBER Working Paper, April 2021
Abstract:
This paper studies how demand for labor reacts to financial technology (fintech) shocks based on comprehensive databases of fintech patents and firm job postings in the U.S. during the past decade. We first develop a measure of fintech exposure at the occupation level by intersecting the textual information in job task descriptions and fintech patents. We then document a significant decline of job postings in the most exposed occupations, and an increase in industry as well as geographical concentration of these occupations. Firms resort to an upskilling strategy in face of the fintech disruption, requiring “combo” (finance and software) skills, higher education attainments, and longer work experiences in the hiring of fintech-exposed jobs. Financial firms and those with high innovation outputs are able to offset the disruptive effect from the fintech shock. Among innovating firms, however, only inventors (but not acquisition-driven innovators) experience growth in hiring, sales, investment, and enjoy better returns on assets.