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Working Paper
Banking Regulation with Risk of Sovereign Default
Banking regulation routinely designates some assets as safe and thus does not require banks to hold any additional capital to protect against losses from these assets. A typical such safe asset is domestic government debt. There are numerous examples of banking regulation treating domestic government bonds as ?safe,? even when there is clear risk of default on these bonds. We show, in a parsimonious model, that this failure to recognize the riskiness of government debt allows (and induces) domestic banks to ?gamble? with depositors? funds by purchasing risky government bonds (and assets ...
Journal Article
Missed Rent: Path to Eviction or Loan from Landlord?
Every year, millions of renters face eviction. Omar Ahmad and Igor Livshits explore why this happens and evaluate policies designed to protect these households.
Journal Article
Regulating Consumer Credit and Protecting (Behavioral) Borrowers
Public policy debate around consumer credit has focused on consumer protection. But from whom are we protecting these borrowers?
Working Paper
Greed as a Source of Polarization
The political process in the United States appears to be highly polarized: evidence from voting patterns finds that the political positions of legislators have diverged substantially, while the largest campaign contributions come from the most extreme lobby groups and are directed to the most extreme candidates. Is the rise in campaign contributions the cause of the growing polarity of political views? In this paper, we show that, in standard models of lobbying and electoral competition, a free-rider problem amongst potential contributors leads naturally to a divergence in campaign ...
Working Paper
Not Cashing In on Cashing Out: An Analysis of Low Cash-Out Refinance Rates
Lowering a borrower’s interest rate is one of the most effective ways to reduce a borrower’s debt burden. Mortgage refinancing offers a chance to shift debt balances from high-interest loans into a low-interest mortgage through “cashing out” some of the home’s equity. Using anonymized data on mortgage refinancing behavior, we find that over half of borrowers with high-interest loans and available home equity do not take advantage of their cash-out opportunities. While the cash-out “surcharge” can rationalize this pattern, we leverage a policy change at Fannie Mae that eliminated ...
Working Paper
Consumer bankruptcy: a fresh start
American consumer bankruptcy provides for a Fresh Start through the discharge of a household?s debt. Until recently, many European countries specified a No Fresh Start policy of life-long liability for debt. The trade-off between these two policies is that while Fresh Start provides insurance across states, it drives up interest rates and thereby makes life-cycle smoothing more difficult. This paper quantitatively compares these bankruptcy rules using a life-cycle model with incomplete markets calibrated to the U.S. and Germany. A key innovation is that households face idiosyncratic ...
Journal Article
Meet the New Borrowers
Credit history is critical for credit access, and it’s more than just a history of repayment.
Working Paper
Polarized Contributions but Convergent Agendas
In a canonical model of policy formation, campaign contributions, and electoral competition, we show that, despite donor polarization, candidates’ agendas converge. If purely office-motivated candidates move away from the centrist agenda, they increase their opponents’ contributions more than their own. An extension that introduces a “job ladder” for the candidates leads to candidates caring about absolute levels of campaign contributions and generates divergence of political agendas in equilibrium. We provide empirical evidence of campaign contributions affecting candidates’ ...
Working Paper
Polarized Contributions but Convergent Agendas
The political process in the United States appears to be highly polarized: Data show that the political positions of legislators have diverged substantially, while the largest campaign contributions come from the most extreme donor groups and are directed to the most extreme candidates. Is the rise in campaign contributions the cause of the growing political polarization? In this paper, we show that, in standard models of campaign contributions and electoral competition, a free-rider problem among potential contributors leads naturally to polarization of campaign contributors but without any ...
Working Paper
Building Credit History with Heterogeneously Informed Lenders
This paper examines a novel mechanism of credit-history building as a way of aggregating information across multiple lenders. We build a dynamic model with multiple competing lenders, who have heterogeneous private information about a consumer's creditworthiness, and extend credit over multiple stages. Acquiring a loan at an early stage serves as a positive signal | it allows the borrower to convey to other lenders the existence of a positively informed lender (advancing that early loan) | thereby convincing other lenders to extend further credit in future stages. This signaling may be costly ...