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Working Paper
Financial statistics for the United States and the crisis: what did they get right, what did they miss, and how should they change?
Although the instruments and transactions most closely associated with the financial crisis of 2008 and 2009 were novel, the underlying themes that played out in the crisis were familiar from previous episodes: Competitive dynamics resulted in excessive leverage and risk-taking by large, interconnected firms, in heavy reliance on short-term sources of funding to finance long-term and ultimately terribly illiquid positions, and in common exposures being shared by many major financial institutions. Understandably, in the wake of the crisis, financial supervisors and policymakers want to obtain ...
Working Paper
A primer on the economics and time series econometrics of wealth effects
This paper reviews the statistical approach typically applied by macroeconomists to investigate the empirical links among aggregate data on household consumption, income, and wealth. In particular, we focus on studies determining whether and how much changes in net worth, such as those generated by the stock-market boom in the U.S. over the latter 1990s, are responsible for subsequent swings in the growth rate of consumer spending. We show how simple economic theory is used to motivate an econometric strategy that consists of two stages of analysis. First, regressions are used to identify ...
Working Paper
The price of residential land in large U.S. cities
Combining data from several sources, we build a database of home values, the cost of housing structures, and residential land values for 46 large U.S. metropolitan areas from 1984 to 2004. Our analysis of these new data reveal that since the mid-1980s residential land values have appreciated over a much wider range of cities than is commonly believed. And, since 1998, almost all large U.S. cities have seen significant increases in real residential land prices. Averaging across the cities in our sample, by year-end 2004, the value of residential land accounted for about 50 percent of the total ...
Discussion Paper
Where’s the Money Going? The Importance of Accounting for Rent Payments in Measuring a Household's Financial Obligations
To get a more comprehensive picture of how families' uncommitted income has evolved since the financial crisis, we analyze a broader measure of households’ committed monthly payments that includes rent for renters, as well as payments to cover mortgages for homeowners and other debt obligations for all families.
Working Paper
Consumption smoothing among working-class American families before social insurance
This paper examines whether the saving decisions of a large sample of working-class American families around the turn of the twentieth century are consistent with consumption smoothing tendencies in the spirit of the permanent income hypothesis. We develop two econometric models to decompose reported annual incomes from micro-data into expected and unexpected components, then we estimate marginal propensities to save out of each component of income. The two methodologies deliver similar regression estimates and reveal empirical patterns consistent with those reported in other recent research ...
Working Paper
Quantifying the role of federal and state taxes in mitigating wage inequality
Wage inequality has risen dramatically in the United States since at least 1980. This paper quantifies the role that the tax policies of the federal and state governments have played in mitigating wage inequality. The analysis, which isolates the contribution of federal taxes and state taxes separately, employs two approaches. First, cross-sectional estimates compare before-tax and after-tax inequality across the 50 states and the District of Columbia. Second, inequality estimates across time are calculated to assess the evolution of the effects of tax policies. The results from the first ...
Discussion Paper
Mapping Heat in the U.S. Financial System: A Summary
This note reports a selection of results from research intended to quantitatively measure the buildup and reduction of vulnerabilities in the U.S. financial system over time.
Working Paper
On the relationships between real consumption, income and wealth
The existence of durable goods implies that the welfare flow from consumption cannot be directly associated with total consumption expenditures. As a result, tests of standard theories of consumption (such as the Permanent Income Hypothesis, or PIH) typically focus on nondurable goods and services. Specifically, these studies generally relate real consumption of nondurable goods and services to measures of real income and wealth, where the latter are deflated by a price index for total consumption expenditures. We demonstrate that this procedure is only valid under the assumption that real ...
Working Paper
Mapping Heat in the U.S. Financial System
We provide a framework for assessing the build-up of vulnerabilities in the U.S. financial system. We collect forty-four indicators of financial and balance-sheet conditions, cutting across measures of valuation pressures, nonfinancial borrowing, and financial-sector health. We place the data in economic categories, track their evolution, and develop an algorithmic approach to monitoring vulnerabilities that can complement the more judgmental approach of most official-sector organizations. Our approach picks up rising imbalances in the U.S. financial system through the mid-2000s, presaging ...
Discussion Paper
Quantifying the role of federal and state taxes in mitigating income inequality
Income inequality has risen dramatically in the United States since at least 1980. This paper quantifies the role that the tax policies of the federal and state governments have played in mitigating this income inequality. The analysis, which isolates the contribution of federal taxes and state taxes separately, employs two approaches. First, cross-sectional estimates compare before-tax and after-tax inequality across the 50 states and the District of Columbia. Second, inequality estimates across time are calculated to assess the evolution of the effects of tax policies. The results from the ...