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Articles 1 - 26 of 26
Full-Text Articles in Finance
Referrals: Peer Screening And Enforcement In A Consumer Credit Field Experiment, Gharad Bryan, Dean Karlan, Jonathan Zinman
Referrals: Peer Screening And Enforcement In A Consumer Credit Field Experiment, Gharad Bryan, Dean Karlan, Jonathan Zinman
Dartmouth Scholarship
Empirical evidence on peer intermediation lags behind both theory and practice in which lenders use peers to mitigate adverse selection and moral hazard. Using a referral incentive under individual liability, we develop a two-stage field experiment that permits separate identification of peer screening and enforcement. Our key contribution is to allow for borrower heterogeneity in both ex ante repayment type and ex post susceptibility to social pressure. Our method allows identification of selection on repayment likelihood, selection on susceptibility to social pressure, and loan enforcement. Implementing our method in South Africa we find no evidence of screening but large enforcement …
Do Opposites Detract? Intrahousehold Preference Heterogeneity And Inefficient Strategic Savings, Simone Schaner
Do Opposites Detract? Intrahousehold Preference Heterogeneity And Inefficient Strategic Savings, Simone Schaner
Dartmouth Scholarship
This paper uses a field experiment to test whether intrahousehold heterogeneity in discount factors leads to inefficient strategic savings behavior. I gave married couples in rural Kenya the opportunity to open both joint and individual bank accounts at randomly assigned interest rates. I also directly elicited discount factors for all individuals in the experiment. Couples who are well matched on discount factors are less likely to use costly individual accounts and respond robustly to relative rates of return between accounts, while their poorly matched peers do not. Consequently, poorly matched couples forgo significantly more interest earnings on their savings. (JEL …
Systematic Bias And Nontransparency In Us Social Security Administration Forecasts, Konstantin Kashin, Gary King, Samir Soneji
Systematic Bias And Nontransparency In Us Social Security Administration Forecasts, Konstantin Kashin, Gary King, Samir Soneji
Dartmouth Scholarship
We offer an evaluation of the Social Security Administration demographic and financial forecasts used to assess the long-term solvency of the Social Security Trust Funds. This same forecasting methodology is also used in evaluating policy proposals put forward by Congress to modify the Social Security program. Ours is the first evaluation to compare the SSA forecasts with observed truth; for example, we compare forecasts made in the 1980s, 1990s, and 2000s with outcomes that are now available. We find that Social Security Administration forecasting errors—as evaluated by how accurate the forecasts turned out to be—were approximately unbiased until 2000 and …
Is Student Loan Debt Discouraging Homeownership Among Young Adults?, Jason N. Houle, Lawrence Berger
Is Student Loan Debt Discouraging Homeownership Among Young Adults?, Jason N. Houle, Lawrence Berger
Dartmouth Scholarship
Amid concern that rising student loan debt has social and economic consequences for young adults, many suggest that student loan debt is leading young adults to forgo home buying. However, there is little empirical evidence on this topic. In this study, we use data from the National Longitudinal Survey of Youth 1997 to estimate associations of student loan debt with homeownership, mortgage amount, and home equity. We use a variety of methodological techniques and test several model specifications. While we find a negative association between debt and homeownership in some models, the association is substantively modest in size and is …
Wall Street And The Housing Bubble, Ing-Haw Cheng, Sahil Raina, Wei Xiong
Wall Street And The Housing Bubble, Ing-Haw Cheng, Sahil Raina, Wei Xiong
Dartmouth Scholarship
We analyze whether mid-level managers in securitized finance were aware of a large-scale housing bubble and a looming crisis in 2004-2006 using their personal home transaction data. We find that the average person in our sample neither timed the market nor were cautious in their home transactions, and did not exhibit awareness of problems in overall housing markets. Certain groups of securitization agents were particularly aggressive in increasing their exposure to housing during this period, suggesting the need to expand the incentives-based view of the crisis to incorporate a role for beliefs.
Why Do Hedgers Trade So Much?, Ing-Haw Cheng, Wei Xiong
Why Do Hedgers Trade So Much?, Ing-Haw Cheng, Wei Xiong
Dartmouth Scholarship
Futures positions of commercial hedgers in wheat, corn, soybeans and cotton fluctuate much more than expected output. Hedgers' short positions are positively correlated with price changes. Together, these observations raise doubt about the common practice of categorically classifying trading by hedgers as hedging while trading by speculators as speculation, as hedgers frequently change their futures positions over time for reasons unrelated to output fluctuations, arguably a form of speculation.
Local Responses To Federal Grants: Evidence From The Introduction Of Title I In The South, Elizabeth U. Cascio, Nora Gordon, Sarah Reber
Local Responses To Federal Grants: Evidence From The Introduction Of Title I In The South, Elizabeth U. Cascio, Nora Gordon, Sarah Reber
Dartmouth Scholarship
We analyze the effects of the introduction of Title I of the 1965 Elementary and Secondary Education Act, a large federal grants program designed to increase poor students' educational services and achievement. We focus on the South, the poorest region of the country. Title I increased school spending by $0.50 on the dollar in the average southern school district and by more in districts with less ability to offset grants through local tax reductions. Title I-induced increases in school budgets appear to have reduced high school dropout rates of whites, but not blacks.
Global Savings And Global Investment: The Transmission Of Identified Fiscal Shocks, James Feyrer, Jay Shambaugh
Global Savings And Global Investment: The Transmission Of Identified Fiscal Shocks, James Feyrer, Jay Shambaugh
Dartmouth Scholarship
This paper examines the effect of exogenous shocks to savings on world capital markets. Exogenous tax increases in the United States (from Romer and Romer 2010) are only partially offset by changes in domestic private savings, and only a small amount is absorbed by increased domestic investment (contra Feldstein and Horioka 1980). Almost half the change in taxes is transmitted abroad through a change in the US current account. Other countries experience decreases in current accounts and increases in investment in response to exogenous US tax increases. We cannot reject symmetric responses across countries with different currency regimes and levels …
Financial Knowledge And Financial Literacy At The Household Level, Alan L. Gustman, Thomas L. Steinmeier, Nahid Tabatabai
Financial Knowledge And Financial Literacy At The Household Level, Alan L. Gustman, Thomas L. Steinmeier, Nahid Tabatabai
Dartmouth Scholarship
There is evidence of a relation between numeracy and wealth held outside of pensions and Social Security. With pensions and Social Security accounting for half of wealth at retirement, and evidence that those with pensions save more in other forms, one would expect to find knowledge of pensions and Social Security influencing retirement saving. Yet we find no evidence that knowledge of pensions and Social Security is related to nonpension, non-Social Security wealth, to numeracy, or that it plays an intermediate role in the numeracy-wealth relation. Our findings raise questions about policies that would enhance numeracy to increase retirement saving.
Vertical Linkages And The Collapse Of Global Trade, Rudolfs Bems, Robert C. Johnson, Kei-Mu Yi
Vertical Linkages And The Collapse Of Global Trade, Rudolfs Bems, Robert C. Johnson, Kei-Mu Yi
Dartmouth Scholarship
A common view is that cross-border vertical linkages played a key role in the 2008-2009 collapse of global trade. This paper presents two accounting results from a global input-output framework that shed light on this channel. We feed in observed changes in final demand and find that trade in final goods fell by twice as much as trade in intermediate goods. Nevertheless, intermediate goods account for more than two-fifths of the trade collapse. We also find that vertical specialization trade fell 13 percent, while value-added trade fell by 10 percent, because declines in demand were largest in highly vertically-specialized sectors.
Financial Stability, The Trilemma, And International Reserves, Maurice Obstfeld, Jay C. Shambaugh, Alan M. Taylor
Financial Stability, The Trilemma, And International Reserves, Maurice Obstfeld, Jay C. Shambaugh, Alan M. Taylor
Dartmouth Scholarship
The rapid growth of international reserves, a development concentrated in the emerging markets, remains a puzzle. In this paper, we suggest that a model based on financial stability and financial openness goes far toward explaining reserve holdings in the modern era of globalized capital markets. The size of domestic financial liabilities that could potentially be converted into foreign currency (M2), financial openness, the ability to access foreign currency through debt markets, and exchange rate policy are all significant predictors of reserve stocks. Our empirical financial-stability model seems to outperform both traditional models and recent explanations based on external short-term debt.
Financial Exchange Rates And International Currency Exposures, Philip R. Lane, Jay C. Shambaugh
Financial Exchange Rates And International Currency Exposures, Philip R. Lane, Jay C. Shambaugh
Dartmouth Scholarship
In order to gain a better empirical understanding of the international financial implications of currency movements, we construct a database of international currency exposures for a large panel of countries over 1990-2004. We show that trade-weighted exchange rate indices are insufficient to understand the financial impact of currency movements and that our currency measures have high explanatory power for the valuation term in net foreign asset dynamics. Exchange rate valuation shocks are sizable, not quickly reversed, and may entail substantial wealth redistributions. Further, we show that many developing countries have substantially reduced their negative foreign currency positions over the last …
Financial Instability, Reserves, And Central Bank Swap Lines In The Panic Of 2008, Maurice Obstfeld, Jay C. Shambaugh, Alan M. Taylor
Financial Instability, Reserves, And Central Bank Swap Lines In The Panic Of 2008, Maurice Obstfeld, Jay C. Shambaugh, Alan M. Taylor
Dartmouth Scholarship
No abstract provided.
What Do Consumers Really Pay On Their Checking And Credit Card Accounts? Explicit, Implicit, And Avoidable Costs, Victor Stango, Jonathan Zinman
What Do Consumers Really Pay On Their Checking And Credit Card Accounts? Explicit, Implicit, And Avoidable Costs, Victor Stango, Jonathan Zinman
Dartmouth Scholarship
No abstract provided.
Credit Elasticities In Less-Developed Economies: Implications For Microfinance, Dean S. Karlan, Jonathan Zinman
Credit Elasticities In Less-Developed Economies: Implications For Microfinance, Dean S. Karlan, Jonathan Zinman
Dartmouth Scholarship
Policymakers often prescribe that microfinance institutions increase interest rates to eliminate their reliance on subsidies. This strategy makes sense if the poor are rate insensitive: then microlenders increase profitability (or achieve sustainability) without reducing the poor's access to credit. We test the assumption of price inelastic demand using randomized trials conducted by a consumer lender in South Africa. The demand curves are downward sloping, and steeper for price increases relative to the lender's standard rates. We also find that loan size is far more responsive to changes in loan maturity than to changes in interest rates, which is consistent with …
Planning And Financial Literacy: How Do Women Fare?, Annamaria Lusardi, Olivia S. Mitchell
Planning And Financial Literacy: How Do Women Fare?, Annamaria Lusardi, Olivia S. Mitchell
Dartmouth Scholarship
Many older US households have done little or no planning for retirement, and there is a substantial population that seems to undersave for retirement. Of particular concern is the relative position of older women, who are more vulnerable to old-age poverty due to their longer longevity. This paper uses data from a special module we devised on planning and financial literacy in the 2004 Health and Retirement Study. It shows that women display much lower levels of financial literacy than the older population as a whole. In addition, women who are less financially literate are also less likely to plan …
The Shift From Defined Benefit Pensions To 401(K) Plans And The Pension Assets Of The Baby Boom Cohort, James Poterba, Steven Venti, David A. Wise
The Shift From Defined Benefit Pensions To 401(K) Plans And The Pension Assets Of The Baby Boom Cohort, James Poterba, Steven Venti, David A. Wise
Dartmouth Scholarship
The rise of 401(k) plans and the decline of defined benefit plans will have an important effect on the wealth of future retirees. Changing demographic structure also will affect the aggregate stock of retirement wealth. We project the stock of assets held in retirement plans and the average retirement saving of retirees through 2040. Our projections show large increases in wealth at retirement, especially if the returns on corporate equities are comparable with historical returns. Retirement wealth will grow, however, even if equity returns fall substantially below their historical level.
Are You Sure You're Saving Enough For Retirement?, Jonathan Skinner
Are You Sure You're Saving Enough For Retirement?, Jonathan Skinner
Dartmouth Scholarship
Many view the soon-to-retire Baby Boomers as woefully unprepared for their golden years, while other economists have taken a more sanguine view of American levels of saving. And if Americans are failures at saving enough for retirement, why are some retirees so happy? The seemingly simple question of "Am I saving enough for retirement?" is apparently not so simple at all. Instead, it touches on a variety of deeper issues in economics, psychology, and health policy. I use the program ESPlanner to present life-cycle retirement wealth targets for a range of incomes and situations typical of American Economic Association members. …
How Will 401(K) Pension Plans Affect Retirement Income?, Andrew A. Samwick, Jonathan Skinner
How Will 401(K) Pension Plans Affect Retirement Income?, Andrew A. Samwick, Jonathan Skinner
Dartmouth Scholarship
How has the emergence of defined contribution pensi on plans, such as 401(k) plans, affected the financial security of future retirees? We consider this question using a unique dataset of pension plan formulas for the Surveys of Consumer Finances in 1983 and 1989 and the characteristics of 401(k) plans from the Surveys of Consumer Finances between 1989 and 2001. Our simulations account for uncertainty in earnings and rates of return on stocks and bonds, ownership of company stock, uncertainty in earnings, and heterogeneity in asset choices, plan participation, and job tenure. We find that in the mid-1990s, 401(k) plans were …
The Capital Asset Pricing Model: Theory And Evidence, Eugene F. Fama, Kenneth R. French
The Capital Asset Pricing Model: Theory And Evidence, Eugene F. Fama, Kenneth R. French
Dartmouth Scholarship
The capital asset pricing model (CAPM) of William Sharpe (1964) and John Lintner (1965) marks the birth of asset pricing theory (resulting in a Nobel Prize for Sharpe in 1990). Before their breakthrough, there were no asset pricing models built from first principles about the nature of tastes and investment opportunities and with clear testable predictions about risk and return. Four decades later, the CAPM is still widely used in applications, such as estimating the cost of equity capital for firms and evaluating the performance of managed portfolios. And it is the centerpiece, indeed often the only asset pricing model …
The Importance Of Bequests And Life-Cycle Saving In Capital Accumulation: A New Answer, Karen E. Dynan, Jonathan Skinner, Stephen P. Zeldes
The Importance Of Bequests And Life-Cycle Saving In Capital Accumulation: A New Answer, Karen E. Dynan, Jonathan Skinner, Stephen P. Zeldes
Dartmouth Scholarship
As the workhorse of consumption and saving research for the past four decades, the life-cycle model has proved flexible and useful for exam- ining a variety of questions. In a classic paper, Albert Ando and Franco Modigliani (1963 p. 56) stated a key assumption of the basic model: “[t]he individual neither expects to receive nor desires to leave any inheritance.” Although the authors contended that the absence of a bequest motive was not critical to the heart of their results, the assumption set off a long-standing battle over the relative importance of different motives for saving. In an influential study, …
What Accounts For The Variation In Retirement Wealth Among U.S. Households?, B. Douglas Bernheim, Jonathan Skinner, Steven Weinberg
What Accounts For The Variation In Retirement Wealth Among U.S. Households?, B. Douglas Bernheim, Jonathan Skinner, Steven Weinberg
Dartmouth Scholarship
Even among households with similar socioeconomic characteristics, saving and wealth vary considerably. Life-cycle models attribute this variation to differences in time preference rates, risk tolerance, exposure to uncertainty, relative tastes for work and leisure at advanced ages, and income replacement rates. These factors have testable implications concerning the relation between accumulated wealth and the shape of the consumption profile. Using the Panel Study of Income Dynamics and the Consumer Expenditure Survey, we find little support for these implications. The data are instead consistent with "rule of thumb," "mental accounting," or hyperbolic discounting theories of wealth accumulation.
Will Aging Baby Boomers Bust The Federal Budget?, Ronald Lee, Jonathan Skinner
Will Aging Baby Boomers Bust The Federal Budget?, Ronald Lee, Jonathan Skinner
Dartmouth Scholarship
The authors analyze in three steps the influence of the projected mortality decline on the long-run finances of the Social Security System. First, mortality decline adds person years of life which are distributed across the life cycle. The interaction of this distribution with the age distribution of taxes minus benefits determines the steady state financial consequences of mortality decline. Second, examination of past mortality trends in the United State and of international trends in low mortality populations, suggests that mortality will decline much faster than foreseen by the SSA's forecasts. Third, based on work on stochastic demographic forecasting, stochastic forecasts …
The Economics Of Prefunding Social Security And Medicare Benefits, Martin Feldstein, Andrew Samwick
The Economics Of Prefunding Social Security And Medicare Benefits, Martin Feldstein, Andrew Samwick
Dartmouth Scholarship
This paper presents a detailed analysis of the economics of prefunding benefits for the aged, focusing on social security but indicating some of the analogous magnitudes for prefunding Medicare benefits. We use detailed census and social security information to model the transition to a fully funded system based on mandatory contributions to individual accounts. The funded system that we examine would permanently maintain the level of benefits now specified in current law and would require no new government borrowing (other than eventually selling the bonds that are officially in the social security trust fund). During the transition, the combined rate …
Household Saving: Micro Theories And Micro Facts, Martin Browning, Annamaria Lusardi
Household Saving: Micro Theories And Micro Facts, Martin Browning, Annamaria Lusardi
Dartmouth Scholarship
In this survey, we review the recent theoretical and empirical literature on household saving and consumption. The discussion is structured around a list of motives for saving and how well the standard theory captures these motives. We show that almost all of the motives for saving that have been suggested in the informal saving literature can be captured in the standard optimizing model. Particular attention is given to recent work on the precautionary motive and its implications for saving and consumption behavior. We also discuss the "behavioral" or "psychological" approach that eschews the use of standard optimization techniques and focuses …
How Retirement Saving Programs Increase Saving, James M. Poterba, Steven F. Venti, David A. Wise
How Retirement Saving Programs Increase Saving, James M. Poterba, Steven F. Venti, David A. Wise
Dartmouth Scholarship
This paper summarizes the authors work on the effect of IRA and 401(k) contributions on net personal saving. They consider many different nonparametric approaches to controlling for heterogeneity in individual saving behavior and conclude that the weight of the available evidence suggests that contributions to both IRAs and 401(k)s largely represent new saving. The authors devote particular attention to reconciling their results with the findings in other studies that reach different conclusions, sometimes using the same databases that the authors analyze. Methodological limitations that undermine the reliability of results in other studies explain many of these disparities.