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A Monte Carlo Examination of Bias Tests in Mortgage Lending

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An exploration of the effectiveness of testing procedures in uncovering discrimination by mortgage lenders, reflecting perceived shortcomings in the scope of data provided by the Home Mortgage Disclosure Act, which indicates that the rejection rate for black mortgage applicants is much higher than for whites. The authors find that for plausible levels of bias, the sample size is critical, but that low levels of bias can be difficult to detect even with large sample sizes.


Suggested citation: Bauer, Paul, and Brian Cromwell. “A Monte Carlo Examination of Bias Tests in Mortgage Lending,” Federal Reserve Bank of Cleveland, Economic Review, vol. 30, no. 3, pp. 27-40, 08.01.1994.

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