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Economic Research

Recent Publications
Intraday Market Making with Overnight Inventory Costs
The authors present a model of a market-making high-frequency trading firm that aims to maximize end-of-day profits, but has the additional goal of unwinding its positions before markets close. They find that the rise in price impact due to the end-of-day constraint leads to more volatile price paths intraday.
By Tobias Adrian, Agostino Capponi, Erik Vogt, and Hongzhong Zhang, Staff Reports 799, October 2016
Home Price Expectations and Behavior: Evidence from a Randomized Information Experiment
Household expectations about future home price growth are believed to play an important role in housing market dynamics. In this paper, the authors find that consumers’ home price expectations react to information about past local home price growth in a way that is not fully consistent with actual patterns in home prices.
By Luis Armona, Andreas Fuster, and Basit Zafar, Staff Reports 798, October 2016
Auto Credit and the 2005 Bankruptcy Reform: The Impact of Eliminating Cramdowns
The authors find that the elimination of auto loan cramdowns in Chapter 13 bankruptcy—the ability of borrowers to reduce the principal on their loans to the market value of the car—resulted in a significant decline in auto loan interest rates. They also find some evidence that eliminating cramdowns increased the size of auto loans.
By Rajashri Chakrabarti and Nathaniel Pattison, Staff Reports 797, October 2016
Market Liquidity after the Financial Crisis
The authors examine the broad trading environment in an effort to outline potential causes of market liquidity trends since the 2007-09 financial crisis—including changing regulations as well as plausible alternative drivers. They do not find strong quantitative evidence of a significant decline in bond market liquidity in the years after the crisis.
By Tobias Adrian, Michael Fleming, and Erik Vogt, Staff Reports 796, October 2016
Bad Credit, No Problem? Credit and Labor Market Consequences of Bad Credit Reports
The authors study the effects of credit reports on credit and labor market outcomes, such as lending and hiring decisions. Their findings show that credit reports are important for credit market outcomes but are of limited consequence for labor market outcomes, because employers rely on a much broader set of screening mechanisms.
By Will Dobbie, Paul Goldsmith-Pinkham, Neale Mahoney, and Jae Song, Staff Reports 795, September 2016
Vulnerable Growth
The authors study the conditional distribution of GDP growth as a function of economic and financial conditions—estimating the distribution nonparametrically using quantile regressions. They find that measures of financial conditions significantly forecast downside vulnerability, while measures of economic conditions have significant predictive power only for the median of the distribution.
By Tobias Adrian, Nina Boyarchenko, and Domenico Giannone, Staff Reports 794, September 2016
International Banking and Cross-Border Effects of Regulation: Lessons from the United States
Domestic prudential regulation can have unintended effects across borders and may be less effective in an environment where banks operate globally. The authors analyze these issues, focusing on the United States, and find evidence of both spillovers of foreign regulatory changes into the United States and cross-border effects of U.S. prudential instrument changes.
By Jose Berrospide, Ricardo Correa, Linda Goldberg, and Friederike Niepmann, Staff Reports 793, September 2016
Human Capital Investments and Expectations about Career and Family
Influential studies have identified future income as a primary motivation for making human capital investments. In this paper, the authors move beyond that to study how young people believe such investments will affect their career and family life—including expectations about marriage and spousal earnings.
By Matthew Wiswall and Basit Zafar, Staff Reports 792, August 2016