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2017 Working Papers

  • WP 17-24 | The Impact of Tobacco-Free School Laws on Student and Staff Smoking Behavior

    Rachana Bhatt Peter L. Hinrichs


    A number of US states have enacted bans on tobacco use by students, staff, and visitors anywhere on the grounds of public elementary and secondary schools statewide. These laws are intended to reduce tobacco use, reduce exposure to secondhand smoke, reinforce anti-tobacco curricula taught in schools, and prevent children from viewing their teachers and fellow students using tobacco products. We examine the impact that the laws have on the smoking behavior of students, teachers, and other school staff by estimating difference-in-differences models that exploit the time variation in adoption of the laws across states. We generally find that these laws do not impact smoking behavior, although we do find some evidence suggesting a possible effect on nonteaching school staff. Read More

  • WP 17-23 | Some Evidence on Secular Drivers of US Safe Real Rates

    Kurt G. Lunsford Kenneth West


    We study long-run correlations between safe real interest rates in the United States and over 20 variables that have been hypothesized to influence real rates. The list of variables is motivated by the familiar intertermporal IS equation, by models of aggregate savings and investment, and by reduced form studies. We use annual data, mostly from 1890 to 2016. We find that safe real interest rates are correlated as expected with demographic measures. For example, the long-run correlation with labor force hours growth is positive, which is consistent with overlapping generations models. For another example, the long-run correlation with the proportion of 40- to 64-year-olds in the population is negative. This is consistent with standard theory where middle-aged workers are high-savers who drive down real interest rates. In contrast to standard theory, we do not find productivity to be positively correlated with real rates. Most other variables have a mixed relationship with the real rate, with long-run correlations that are statistically or economically large in some samples and by some measures but not in others. Read More

  • WP 17-22 | Parental Proximity and Earnings after Job Displacements

    Patrick Coate Pawel Krolikowski Mike Zabek


    Young adults, ages 25 to 35, who live in the same neighborhoods as their parents experience stronger earnings recoveries after a job displacement than those who live farther away. This result is driven by smaller on-impact wage reductions and sharper recoveries in both hours and wages. We show that geographic mobility, different job search durations, housing transfers, and ex-ante differences between individuals are unlikely explanations. Our findings are consistent with a framework in which some individuals living near their parents face a better wage-offer distribution, though we find no direct evidence of parental network effects. Read More

  • WP 16-16R2 | How Do Lead Banks Use Their Private Information about Loan Quality in the Syndicated Loan Market?

    Lakshmi Balasubramanyan Allen Berger Matthew Koepke

    Original Paper: WP 16-16 | Revisions: WP 16-16R


    We formulate and test two opposing hypotheses about how lead banks in the syndicated loan market use private information about loan quality, the Signaling Hypothesis and Sophisticated Syndicate Hypothesis. We use Shared National Credit (SNC) internal loan ratings made comparable using concordance tables to measure private information. We find favorable private information is associated with higher lead bank loan retention and lower interest rate spreads for pure term loans, ceteris paribus, supporting the Signaling Hypothesis. Neither hypothesis dominates for pure revolvers. The data partially support two conjectures about the circumstances under which the two hypotheses are more likely to hold. Read More

  • WP 17-21 | Costly Information Intermediation as a Natural Monopoly

    Daniel Monte Roberto Pinheiro

    Revisions: WP 17-21R


    In this paper, we show that information trade has similar characteristics to a natural monopoly, where competition may be detrimental to efficiency due either to the duplication of direct costs or the slowing down of information dissemination. We present a model with two large populations in which consumers are randomly matched to providers on a period-by-period basis. Despite a moral hazard problem, cooperation can be sustained through an institution that gives incentives to information exchange. We consider different information pricing mechanisms (membership vs. buy and sell) and different competitive environments. In equilibrium, both pricing and competitive schemes affect the direct and indirect costs of information transmission, represented by directed fees paid by consumers and the expected loss due to imperfect information, respectively. Read More

  • WP 17-20 | Convergence of Cultural Traits with Time-Varying Self-Confidence in the Panebianco (2014) Model--A Corrigendum

    Fabrizio Panebianco Anja Prummer Jan-Peter Siedlarek


    We highlight that convergence in repeated averaging models commonly used to study cultural traits or opinion dynamics is not equivalent to convergence in Markov chain settings if transition matrices are time-varying. We then establish a new proof for the convergence of cultural traits in the model of Panebianco (2014) correcting the existing proof. The new proof provides novel insights on the long-run outcomes for inessential individuals. We close with a discussion of conditions for convergence in repeated averaging models with time-varying transition matrices. Read More

  • WP 17-19 | Comparison of Small Bank Failures and FDIC Losses in the 1986–92 and 2007–13 Banking Crises

    Edward S. Prescott Eliana Balla Laurel Mazur John Walter


    Failure rates of small commercial banks during the banking crisis of the late 1980s were about 7.6%, which is significantly higher than the 5.7% failure rate during the recent crisis. We compare failure rates in the two periods using a statistical model that allows us to decompose the effect of changes in bank characteristics and economic shocks on failure rates. We find that the severe economic shocks of the recent crisis had a larger impact on high bank failure rates than bank characteristics. Read More

  • WP 17-18 Removed | The Taste of Peer-to-Peer Loans

    Yuliya Demyanyk Elena Loutskina Daniel Kolliner


    This working paper has been removed due to concerns that the underlying data sample used in the analysis does not support the paper's conclusions. Read More

  • WP 17-17 | Testing for Differences in Path Forecast Accuracy: Forecast-Error Dynamics Matter

    Andrew B. Martinez


    Although the trajectory and path of future outcomes plays an important role in policy decisions, analyses of forecast accuracy typically focus on individual point forecasts. However, it is important to examine the path forecasts errors since they include the forecast dynamics. We use the link between path forecast evaluation methods and the joint predictive density to propose a test for differences in system path forecast accuracy. We also demonstrate how our test relates to and extends existing joint testing approaches. Simulations highlight both the advantages and disadvantages of path forecast accuracy tests in detecting a broad range of differences in forecast errors. We compare the Federal Reserve's Greenbook point and path forecasts against four DSGE model forecasts. The results show that differences in forecast-error dynamics can play an important role in the assessment of forecast accuracy. Read More

  • WP 16-25R | The Unintended Consequences of Employer Credit Check Bans on Labor and Credit Markets

    Kristle Cortés Andrew Glover Murat Tasci


    We document that county-level job vacancies decline between 9.5 and 12.4 percent after states enact laws that restrict employers' access to the credit reports of job applicants. The evidence suggests that, counter to their intent, employer credit-check bans disrupt labor and credit markets, especially for workers who are subprime borrowers. Read More

  • WP 17-16 Removed | Politicizing Consumer Credit

    Pat Akey Rawley Z. Heimer Stefan Lewellen


    This working paper has been removed. Read More

  • WP 14-42R | The Politics of Flat Taxes

    Daniel R. Carroll Jim Dolmas Eric Young

    Original Paper: WP 14-42


    We study the determination of flat tax systems using a workhorse macroeconomic model of inequality. Our first result is that, despite the multidimensional policy space, equilibrium policies are typically unique (up to a fine grid numerical approximation). The majority voting outcome features (i) zero labor income taxation, (ii) simultaneous use of capital income and consumption taxation, and (iii) generally low transfers. We discuss the role of three factors—the initial heterogeneity in sources of income, the mobility of income and wealth, and the forward-looking aspect of voting—in determining the equilibrium mix of taxes. Read More

  • WP 14-32R2 | Neoclassical Inequality

    Daniel R. Carroll Eric Young

    Original Paper: WP 14-32 | Revisions: WP 14-32R


    In a model with a worker-capitalist dichotomy, we show that the relationship between inequality (measured as a ratio of incomes for the two types) and growth is complicated; zero growth generally lowers inequality, except under extreme parameterizations. In particular, the elasticity of substitution between capital and labor in production needs to be considerably greater than 1 in order for income inequality be higher with zero growth. If this condition is not met, factor prices adjust strongly causing the fall in the return to capital (the rise in wages) to reduce income inequality. Our results extend to models with endogenous growth. Read More

  • WP 17-15 | Modeling Time-Varying Uncertainty of Multiple-Horizon Forecast Errors

    Todd E. Clark Michael McCracken Elmar Mertens

    Revisions: WP 17-15R


    We develop uncertainty measures for point forecasts from surveys such as the Survey of Professional Forecasters, Blue Chip, or the Federal Open Market Committee’s Summary of Economic Projections. At a given point of time, these surveys provide forecasts for macroeconomic variables at multiple horizons. To track time-varying uncertainty in the associated forecast errors, we derive a multiple-horizon specification of stochastic volatility. Compared to constant-variance approaches, our stochastic-volatility model improves the accuracy of uncertainty measures for survey forecasts. Read More

  • WP 16-05R | Choosing a Control Group for Displaced Workers

    Pawel Krolikowski

    Original Paper: WP 16-05


    The vast majority of studies on the earnings of displaced workers use a control group of never-displaced workers to examine the effects of initial displacements. This approach attributes earnings declines due to all future job instability to the initial displacement event, overstating the losses relative to the average treatment effect. This paper’s approach isolates the impact of an average displacement without conditioning on future displacement status in the control group. In comparisons of the standard and alternative approaches using PSID data, the estimated long-run earnings losses fall dramatically from 25 percent to as low as 5 percent. Read More

  • WP 17-14 | Dotcom Extreme Underpricing

    Antonio Gledson de Carvalho Roberto Pinheiro Joelson Oliveira Sampaio


    We conjecture that the Dotcom abnormal underpricing resulted from the emergence a large cohort of firms racing for market leadership/survivorship. Fundamentals pricing at the IPO was part of their strategy. Consistent with our conjecture, firms’ strategic goals and characteristics fully explain the abnormal underpricing. Contrary to alternatives explanations, underpricing was not associated with top underwriting; there was no deterioration of issuers’ quality; and top underwriters and analysts became more selective. Read More

  • WP 17-13 | Dotcom Price Spiral

    Antonio Gledson de Carvalho Roberto Pinheiro Joelson Oliveira Sampaio


    We show that during the bubble implied growth rates coming from the underpricing of IPO market explains short term returns on the NASDAQ index. This result remains even if we replace actual underprice for others different instruments for underpricing that are based on predetermined variables and not correlated to market returns. We also do placebo tests to assess the relation between underpricing and NASDAQ returns over other periods. We show that growth proxies that are not contaminated by the booms and busts of the stock market are uncorrelated with the returns on the NASDAQ index in periods outside the bubble. Read More

  • WP 16-24R | Venture Capital and Underpricing: Capacity Constraints and Early Sales

    Roberto Pinheiro

    Original Paper: WP 16-24


    This paper has been removed at the request of the publisher. The paper has been published in the <I>Annals of Finance</I> (2018) and is available at Read More

  • WP 16-14R | The Impact of Merger Legislation on Bank Mergers

    Elena Carletti Steven Ongena Jan-Peter Siedlarek Giancarlo Spagnolo

    Original Paper: WP 16-14


    We find that stricter merger control legislation increases abnormal announcement returns of targets in bank mergers by 7 percentage points. Analyzing potential explanations for this result, we document an increase in the pre-merger profitability of targets, a decrease in the size of acquirers, and a decreasing share of transactions in which banks are acquired by other banks. Other merger properties, including the size and risk profile of targets, the geographic overlap of merging banks, and the stock market response of rivals appear unaffected. The evidence suggests that the strengthening of merger control leads to more efficient and more competitive transactions. Read More

  • WP 17-12 | Manufacturing Employment Losses and the Economic Performance of the Industrial Heartland

    Mark E. Schweitzer


    The industrial Midwest, sometimes referred to disparagingly as the &ldquo;Rust Belt,&rdquo; has long been recognized as a distinct economic region and an important contributor to the US economy. Prior research has emphasized the role that losses in the manufacturing sector have played in the plight of several Midwestern states and cities, particularly in the late 1970s and early 1980s. We identify a hypothetical industrial heartland region consisting of MSAs that have high concentrations of 1969 earnings in manufacturing relative to the US average and that are located within the geography often associated with the Rust Belt. For comparison purposes we also identify a set of manufacturing-intensive MSAs outside the region and a set of MSAs with low manufacturing concentrations (service-intensive MSAs). We then identify cross-sectional correlations in the economic performance of MSAs during and following losses in manufacturing employment and evaluate whether the industrial heartland region has a distinct response to those losses. We identify two major shocks to manufacturing employment: 1979 to 1983 and 2001 to 2010. While the second episode was slower to develop, the employment losses in manufacturing that were sustained during it are nearly as large as in the first episode. The size of manufacturing loss is reliably correlated across MSAs during and following these two manufacturing shocks with measures of economic performance including nonmanufacturing employment, unemployment, population, and per capita income levels. In addition, we find that manufacturing employment losses typically are associated with larger declines in economic performance in the MSAs of the industrial heartland than in other manufacturing-intensive MSAs or in service-intensive MSAs. Despite substantially lower shares of employment and earnings of manufacturing within the industrial heartland in 2001, the effect of the second manufacturing employment shock is substantial (particularly for real per capita income) and similar in magnitude to the first manufacturing shock. Read More

  • WP 16-29R | Financial Engineering and Economic Development

    Pedro Amaral Dean Corbae Erwan Quintin

    Original Paper: WP 16-29


    The vast literature on financial development focuses mostly on the causal impact of the quantity of financial intermediation on economic development and productivity. This paper, instead, focuses on the role of the financial sector in creating securities that cater to the needs of heterogeneous investors. We describe a dynamic extension of Allen and Gale (1989)'s optimal security design model in which producers can tranche the stochastic cash flows they generate at a cost. Lowering security creation costs in that environment leads to more financial investment, but it has ambiguous effects on capital formation, output, and aggregate productivity. Much of the investment boom caused by increased securitization activities can, in fact, be spent on securitization costs and intermediation rents, with little or even negative effects on development and productivity. Read More

  • WP 17-11 | The Optimal Response of Bank Capital Requirements to Credit and Risk in a Model with Financial Spillovers

    Filippo Occhino


    This paper studies optimal bank capital requirements in an economy where bank losses have financial spillovers. The spillovers amplify the effects of shocks, making the banking system and the economy less stable. The spillovers increase with banks' financial distortions, which in turn increase with banks' credit risk. Higher capital requirements dampen the current supply of banks' credit, but mitigate banks' future financial distortions. Capital requirements should be raised in response to both an expansion of banks' credit supply and an increase in the expected future credit risk of banks. They should be lowered close to one-to-one in response to bank losses. Read More

  • WP 17-10 | Origins of Too-Big-to-Fail Policy

    George Nurisso Edward S. Prescott


    This paper traces the origin of the too-big-to-fail problem in banking to the bailout of the $1.2 billion Bank of the Commonwealth in 1972. It describes this bailout and those of subsequent banks through that of Continental Illinois in 1984. Motivations behind the bailouts are described with a particular emphasis on those provided by Irvine Sprague in his book Bailout. During this period, market concentration due to interstate banking restrictions is a factor in most of the bailouts, and systemic risk concerns were raised to justify the bailouts of surprisingly small banks. Sprague's descriptions are also used to describe the tradeoffs and the time-consistency problem faced by bank regulators. Finally, most of the bailouts in this period relied on the Federal Deposit Insurance Corporation's use of the Essentiality Doctrine. A discussion of this doctrine is provided and used to illustrate how legal constraints on regulators may become less constraining over time. Read More

  • WP 17-09 | Redistributive Fiscal Policies and Business Cycles in Emerging Economies

    Amanda Michaud Jacek Rothert


    Government expenditures are procyclical in emerging markets and counter-cyclical in developed economies. We show this pattern is driven by differences in social transfers. Transfers are more countercyclical and comprise a larger portion of spending in developed economies compared to emerging. In contrast, government expenditures on goods and services are quite similar across the two. In a small open economy model, we find disparate social transfer policies can account for more than a half of the excess volatility of consumption relative to output in emerging economies. We analyze how differences in tax policy and the nature of underlying inequality amplify or mitigate this result. Read More

  • WP 17-08 | Forecasting GDP Growth with NIPA Aggregates

    Christian Garciga Edward S. Knotek II


    Beyond GDP, which is measured using expenditure data, the U.S. national income and product accounts (NIPAs) provide an income-based measure of the economy (gross domestic income, or GDI), a measure that averages GDP and GDI, and various aggregates that include combinations of GDP components. This paper compiles real-time data on a variety of NIPA aggregates and uses these in simple time-series models to construct out-of-sample forecasts for GDP growth. Over short forecast horizons, NIPA aggregates—particularly consumption and GDP less inventories and trade—together with these simple time-series models have historically generated more accurate forecasts than a canonical AR(2) benchmark. This has been especially true during recessions, although we document modest gains during expansions as well. Read More

  • WP 17-07 | Evidence on the Production of Cognitive Achievement from Moving to Opportunity

    Dionissi Aliprantis


    This paper performs a subgroup analysis on the effect of receiving a Moving to Opportunity (MTO) housing voucher on test scores. I find evidence of heterogeneity by number of children in the household in Boston, gender in Chicago, and race/ethnicity in Los Angeles. To study the mechanisms driving voucher effect heterogeneity, I develop a generalized Rubin Causal Model and propose an estimator to identify transition-specific Local Average Treatment Effects (LATEs) of school and neighborhood quality. Although I cannot identify such LATEs with the MTO data, the analysis demonstrates that membership in a specific demographic group is more predictive of voucher effects than is the group&rsquo;s average change in school or neighborhood quality. I discuss some possible explanations. Read More

  • WP 16-22R | Measuring Uncertainty and Its Impact on the Economy

    Andrea Carriero Todd E. Clark Massimiliano Marcellino

    Original Paper: WP 16-22 | Revisions: WP 16-22C


    We propose a new model for measuring uncertainty and its effects on the economy, based on a large vector autoregression with stochastic volatility driven by common factors representing macroeconomic and financial uncertainty. The uncertainty measures reflect changes in both the conditional mean and volatility of the variables, and their impact on the economy can be assessed within the same framework. Estimates with U.S. data show substantial commonality in uncertainty, with sizable effects of uncertainty on key macroeconomic and financial variables. However, historical decompositions show a limited role of uncertainty shocks in macroeconomic fluctuations. Read More

  • WP 17-06 | Organizations, Skills, and Wage Inequality

    Roberto Pinheiro Murat Tasci

    Revisions: WP 17-06R


    We extend an on-the-job search framework in order to allow firms to hire workers with different skills and skills to interact with firms' total factor productivity (TFP). Our model implies that more productive firms are larger, pay higher wages, and hire more workers at all skill levels and proportionately more at higher skill types, matching key stylized facts. We calibrate the model using five educational attainment levels as proxies for skills and estimate nonparametrically firm-skill output from the wage distributions for different educational levels. We consider two periods in time (1985 and 2009) and three counterfactual economies in which we evaluate how the wage distribution would have evolved if we kept one of the following key characteristics at its 1985's levels: firm-skill output distribution, labor market frictions, and skill distribution. Our results indicate that 79.2 percent of the overall wage dispersion and 72.6 percent of the within-group component can be attributed to a shift in the firm-skill output distribution. Once we assume a parametric calibration of the output per skill-TFP pair, we are able to show that most of the effect of changes in the output distribution is due to an increase in the average labor productivity of college graduates and post-graduates. Read More

  • WP 17-05 | A Theory of Sticky Rents: Search and Bargaining with Incomplete Information

    Randal J. Verbrugge Joshua Gallin


    The housing rental market offers a unique laboratory for studying price stickiness. This paper is motivated by two facts: 1. Tenants’ rents are remarkably sticky even though regular and expected recontracting would, by itself, suggest substantial rent flexibility. 2. Rent stickiness varies significantly across structure type; for example, detached unit rents are far stickier than large apartment unit rents. We offer the first theoretical explanation of rent stickiness that is consistent with these facts. In this theory, search and bargaining with incomplete information generates stickiness in the absence of menu costs or other commonly used modeling assumptions. Tenants’ valuations of their units, and whether they are considering other units, are both private information. At lease end, the behavior of risk-averse landlords differs according to the number of units managed. Multi-unit landlords, aided by the law of large numbers, exploit tenant moving costs. When renegotiating rent contracts, they set rent increases that exceed the inflation rate; while the majority of tenants stay, those who place low value on the unit search elsewhere and leave. Landlords with one unit loathe vacancy and offer tenants the identical contract to pre-empt search; only those who really hate the unit leave. Read More

  • WP 17-04 | Growing Up without Finance

    James Brown J. Anthony Cookson Rawley Z. Heimer


    Early-life exposure to local financial institutions increases household financial inclusion and leads to long-term improvements in consumer credit outcomes. We identify the effect of local financial markets using congressional legislation that led to large and unintended differences in financial market development across Native American reservations. Individuals who grow up on financially underdeveloped reservations enter formal credit markets later than individuals from financially developed reservations and have persistently worse consumer credit outcomes (10 point lower credit scores and a 4 percentage point increase in delinquent accounts). These differences are equal to the effect of a $6,000 decrease in annual personal incomes. The effects are long-lived: The financial health of individuals who grow up on and leave financially underdeveloped reservations takes more than a decade to converge with those from financially developed reservations. Read More

  • WP 16-26R | Is the Light Rail “Tide” Lifting Property Values? Evidence from Hampton Roads, Virginia

    Gary Wagner Timothy Komarek Julia Martin

    Original Paper: WP 16-26


    In this paper we examine the effect of light rail transit on the residential real estate market in the metropolitan region of Hampton Roads, Virginia. Norfolk’s light rail system, the Tide, began operations in August of 2011 and has experienced disappointing levels of ridership compared to other light rail systems. We estimate the effect of the Tide using a difference-in-differences model and consider several outcome variables for the residential housing market, including sale price, sale-list price spread, and the time-on-market. Our identification strategy exploits a proposed rail line in neighboring Virginia Beach, Virginia, that was rejected by a referendum in 1999. Overall, the results show negative consequences from the constructed light rail line. Properties within 1,500 meters experienced a decline in sale price of nearly 8%, while the sale-list price spread declined by approximately 2%. Our results highlight the potential negative effects of light rail when potential accessibility benefits do not outweigh apparent local costs. Read More

  • WP 16-20R | Fiscal Stimulus and Consumer Debt

    Yuliya Demyanyk Elena Loutskina Daniel Murphy

    Original Paper: WP 16-20


    In the aftermath of the consumer debt-induced recession, policymakers have questioned whether fiscal stimulus is effective during the periods of high consumer indebtedness. This study empirically investigates this question. Using detailed data on Department of Defense spending for the 2007 - 2009 period, we document that the open-economy relative fiscal multiplier is higher in geographies with higher consumer indebtedness. The results suggest that fiscal policy can mitigate the adverse effect of consumer (over)leverage on real economic output during a recession. We then exploit detailed microdata to evaluate whether aggregate demand and aggregate supply economic mechanisms contribute to the debt-dependent multiplier. Read More

  • WP 17-03 | Does Differential Treatment Translate to Differential Outcomes for Minority Borrowers? Evidence from Matching a Field Experiment to Loan-Level Data

    Andrew Hanson Zackary Hawley Hal Martin


    This paper provides evidence on the relationship between differential treatment of minority borrowers and their mortgage market outcomes. Using data from a field experiment that identifies differential treatment matched to real borrower transactions in the Home Mortgage Disclosure Act (HMDA) data, we estimate difference-in-difference models between African American and white borrowers across lending institutions that display varying degrees of differential treatment. Our results show that African Americans are more likely to be in a high-cost (subprime) loan when borrowing from lenders that are more responsive to them in the field experiment. We also show that net measures of differential treatment are not related to the probability of African American borrowers having a high-cost loan. Our results suggest that differential outcomes are related to within-institution factors, not just across-institution factors like institutional access, as previous studies find. Read More

  • WP 17-02 | Financial Nowcasts and Their Usefulness in Macroeconomic Forecasting

    Edward S. Knotek II Saeed Zaman


    Financial data often contain information that is helpful for macroeconomic forecasting, while multistep forecast accuracy also benefits by incorporating good nowcasts of macroeconomic variables. This paper considers the role of nowcasts of financial variables in making conditional forecasts of real and nominal macroeconomic variables using standard quarterly Bayesian vector autoregressions (BVARs). For nowcasting the quarterly value of a variety of financial variables, we document that the average of the available daily data and a daily random walk forecast to fill in the missing days in the quarter typically outperforms other nowcasting approaches. Using real-time data and out-of-sample forecasting exercises, we find that the inclusion of financial variable nowcasts by themselves generally improves forecast accuracy for macroeconomic variables relative to unconditional forecasts, although we document several exceptions in which current-quarter forecast accuracy worsens with the inclusion of the financial nowcasts. Incorporating financial nowcasts and nowcasts of macroeconomic variables generally improves the forecast accuracy for all the macroeconomic indicators of interest, beyond including the nowcasts of the macroeconomic variables alone. Conditional forecasts generated from quarterly BVARs augmented with nowcasts of key financial variables rival the forecast accuracy of mixed-frequency dynamic factor models (MF-DFMs) and mixed-data sampling (MIDAS) models that explicitly link the quarterly data and forecasts to high-frequency financial data. Read More

  • WP 17-01 | Is "Fintech" Good for Small Business Borrowers? Impacts on Firm Growth and Customer Satisfaction

    Mark E. Schweitzer Brett Barkley


    "Fintech" is a rapidly expanding segment of the financial market that is receiving much attention from investors and increasing regulatory scrutiny. While the attention is rising, very little is known about the performance of these lending sources on the outcomes of small businesses that make use of them. The Federal Reserve's 2015 Small Business Credit Survey has data on the experiences of business owners with this new funding source and can provide some useful insights into this expanding sector, if compositional differences among the businesses that get bank loans, those that get fintech loans, and those that are denied credit are accounted for. We apply an inverse-probability-weighted regression adjustment and inverse-probability weighting from the treatment effects literature to adjust for compositional difference. We find: (1) online borrowers have characteristics that make them very much like the businesses who were denied credit, (2) the results for online lenders are hard to distinguish from either receiving no financing or receiving a bank loan, and (3) bank borrowers are more satisfied than online borrowers who are more satisfied than businesses who were denied credit. These results should inform the policy discussion on fintech and point to the need for clearer results on the effectiveness of online lenders to small businesses. Read More

  • WP 16-16R | How Do Lead Banks Use Their Private Information about Loan Quality in the Syndicated Loan Market?

    Lakshmi Balasubramanyan Allen Berger Matthew Koepke

    Original Paper: WP 16-16 | Revisions: WP 16-16R2


    Little is known about how lead banks in the syndicated loan market use their private information about loan quality. We formulate and test two opposing hypotheses, the Signaling Hypothesis and the Sophisticated Syndicate Hypothesis. To measure private information, we use Shared National Credit (SNC) internal loan ratings, which are made comparable across lead banks using concordance tables. We find that favorable private information is associated with higher loan retention by lead banks for term loans, ceteris paribus, consistent with the Signaling Hypothesis, while neither hypothesis dominates for revolvers. Differences in syndicate structure at least partially explain this disparity. Read More