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February 18, 2015

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Posted: 18 Feb 2015 12:06 AM PST

'What's (Not) Up with Wage Growth?'

Posted: 17 Feb 2015 01:52 PM PST


What's (Not) Up with Wage Growth?: In recent months, there's been plenty of discussion of the surprisingly sluggish growth in hourly wages. It certainly has the attention of our boss, Atlanta Fed President Dennis Lockhart, who in a speech on February 6 noted that
The behavior of wages and prices, in contrast, remains less encouraging, and, frankly, somewhat puzzling in light of recent growth and jobs numbers.
So what's up—or not up—with wage growth? ...

After lots of analysis, they conclude:

... Lower-than-normal wage growth appears to be a very widespread feature of the labor market since the end of the recession.

'Animal Spirits and Business Cycles'

Posted: 17 Feb 2015 01:52 PM PST

Human animals and their spirits:

Animal Spirits and Business Cycles, by Rhys Bidder, Economic Letter, FRBSF: What causes economic fluctuations? The economy is buffeted by many factors, such as technological advances, commodity price changes, and policy stimulus. But a long-running tradition attributes part of the ups and downs in the business cycle to changes in consumer sentiment, or "animal spirits." Researchers have considered many approaches to explaining this nebulous concept. In this Economic Letter I discuss a novel strategy in Bidder and Smith (2012) that shows how changes in the variability of the economy, combined with the uncertainty people have over how the world works, can generate a phenomenon like animal spirits and, thus, drive business cycles. ...

'Student Loan Delinquency Rate Defies Overall Downward Trend'

Posted: 17 Feb 2015 10:08 AM PST

Many people cite education as the best way to combat inequality. It can't hurt, but we need to stop burdening those who do go to college with so much debt:

Just Released: Student Loan Delinquency Rate Defies Overall Downward Trend in Household Debt and Credit Report for Fourth Quarter 2014, by Meta Brown, Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw, Liberty Street Economics: Today, the New York Fed released the Quarterly Report on Household Debt and Credit for the fourth quarter of 2014. The report is based on data from the New York Fed's Consumer Credit Panel, a nationally representative sample drawn from anonymized Equifax credit data. Overall, aggregate balances increased by $117 billion, or 1.0 percent, boosted by increases in all credit types except home equity lines of credit.
Delinquency rates improved overall, although the improvement was not across the board, as there were upticks in the delinquency rates for both student loans and auto loans. The chart below shows balance-weighted 90+ day delinquency rates by category of household debt.


The delinquency rates for mortgages, home equity lines of credit (HELOCs), auto loans, and credit cards peaked noticeably in the years following the recession, and have since fallen. In the case of mortgages, the ... Quarterly Report reveals that the flow into serious delinquency also remains somewhat high by historical standards.
Credit card delinquencies have been steadily improving, and are now at some of the lowest levels we've seen since the start of our data in 1999.
Auto loan delinquencies have followed a similar trajectory, although we should note that in the most recent quarter, there is an uptick in the 90+ day delinquency rate. This uptick is even more pronounced in our measures of flows into delinquency, and we'll continue monitoring this going forward.
The 90+ day delinquency rate for student loans, however, is different from the others—the rate has increased substantially since our student loan data began in 2003, and has now reached 11.3 percent. Student loans have the highest delinquency rate of any form of household credit, having surpassed credit cards in 2012. There are several reasons for this. Student debt is not dischargeable in bankruptcy like other types of debt; thus, delinquent or defaulted student loans can stagnate on borrowers' credit reports, creating an ever-increasing pool of delinquent debt. Additionally, the measures of new delinquency in our Quarterly Report do reflect high inflows into delinquency.
Yet even these rather grim statistics don't tell the whole story. This week, in a series of three blog posts, we will use our dataset to further investigate student loan balances and delinquencies. In the first post, we will update some descriptive statistics on student loan borrowers—we'll look at who is borrowing, and how much they owe. In the second post, we'll take a long look at how we calculate delinquency rates. We'll use our data to approximate graduation cohorts, and use those cohorts to calculate default rates. In the third blog post, we'll use the established cohorts to examine borrowers' progress in paying down their balances. By the end of the week, readers will have a better understanding of student borrowing in the United States.

Inequality Has Actually Not Risen Since the Financial Crisis???

Posted: 17 Feb 2015 09:42 AM PST

David Leonhardt reports on a study showing that income inequality has not increased since the Financial Crisis:

Inequality Has Actually Not Risen Since the Financial Crisis: The notion that income inequality has continued to rise over the past decade is part of the conventional wisdom. You've no doubt heard versions: The rich just keep getting richer. Inequality is higher than ever. Nearly all of the gains from the economic recovery have gone to the top 1 percent.
No question, inequality is extremely high from a historical perspective – worrisomely so. But a new analysis, by Stephen J. Rose of George Washington University, adds an important wrinkle to the story: Income inequality has not actually risen since the financial crisis began. ...

Amir Sufi , on Twitter, says not so fast, this study has flaws:

Amir Sufi @profsufi Who takes biggest income hit in recessions? @DLeonhardt takes a look at some research, but I don't think it's the best stuff out there.
Amir Sufi @profsufi The ideal thought experiment is to sort households ex ante on income (or wealth), and then track same households through recession.
Amir Sufi @profsufi The best study that actually does this uses SSA data and is here:…
Amir Sufi @profsufi All the research typically cited looks at percentiles of distribution, not same households over time. This can lead to strange results
Amir Sufi @profsufi During recessions, poor see bigger decline in wages than rich through entire distribution except very top. Very richest see biggest decline.
Amir Sufi @profsufi A technical figure, but it is incredibly important so worth taking time to look at it. From:…
Amir Sufi @profsufi The poor see larger decline in wages during recessions across entire distribution except for very top:
Amir Sufi @profsufi Again, ideal experiment is sort households by income in 2006, then track SAME households through recession. Don't use percentiles.
Amir Sufi @profsufi @JedKolko authors say because those recessions were much more severe, so more typical patterns of "severe" recessions
Amir Sufi @profsufi Want to understand income inequality during recessions? Read Section VI.B.1 of this study. Best stuff I've seen.…

'Applying Keynes's Insights about Liquidity Preference to the Yield Curve'

Posted: 17 Feb 2015 09:41 AM PST

Via email, a new paper from Josh R. Stillwagon, an Assistant Professor of Economics at Trinity College, appearing in  the Journal of International Financial Markets, Institutions & Money. The paper "applies some of Keynes's insights about liquidity preference to understanding term structure premia. The following is an excerpt paraphrased from the conclusion":

"This work uses survey data on traders' interest rate forecasts to test the expectations hypothesis of the term structure and finds clear evidence of a time-varying risk premium in four markets... Further, it identifies two significant factors which impact the magnitude of the risk premium. The first is overall consumer sentiment analogous to Keynes's "animal spirits"... The second factor is the level of and/or changes in the interest rate, consistent with the imperfect knowledge economics gap model [applied now to term premia]; the intuition being that the increasing skew to potential bond price movements from a fall in the interest rate [leaving more to fear than to hope as Keynes put it] causes investors to demand a greater premium. This was primarily observed in the medium-run relations of the I(2) CVAR, indicating that these effects are transitory suggesting, as Keynes argued, that what matters is not merely how far the interest rate is from zero but rather how far it is from recent levels."
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