Tuesday, 31 March 2015

IFDP2015-1132: Large Capital Inflows, Sectoral Allocation, and Economic Performance

Otmane El Rhazi, Gianluca Benigno, Nathan Converse, and Luca Fornaro. This paper describes the stylized facts characterizing periods of exceptionally large capital inflows in a sample of 70 middle- and high-income countries over the last 35 years. We identify 155 episodes of large capital inflows and find that these events are typically accompanied by an economic boom and followed by a slump. Moreover, during episodes of large capital inflows capital and labor shift out of the manufacturing sector, especially if the inflows begin during a period of low international interest rates. However, accumulating reserves during the period in which capital inflows are unusually large appears to limit the extent of labor reallocation. Larger credit booms and capital inflows during the episodes we identify increase the probability of a sudden stop occurring during or immediately after the episode. In addition, the severity of the post-inflows recession is significantly related to the extent of labor reallocation during the boom, with a stronger shift of labor out of manufacturing during the inflows episode associated with a sharper contraction in the aftermath of the episode. Full Text



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Otmane El Rhazi

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Friday, 27 March 2015

2015-019: Wealth, Pensions, Debt, and Savings: Considerations for a Panel Survey

Otmane El Rhazi, Brian K. Bucks and Karen M. Pence. Several U.S. panel surveys measure household wealth. At the same time, many important questions about household wealth accumulation remain somewhat unresolved. We consider whether measurement error on the existing suite of longitudinal surveys hinders their usefulness for addressing these questions. We review the features of wealth data that make it difficult to collect and assess which assets and debts households are more likely to report accurately. We suggest several considerations in choosing between improving existing surveys and starting a new one. Full Text



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Otmane El Rhazi

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Wednesday, 25 March 2015

2015-018: Banking panics and deflation in dynamic general equilibrium

Otmane El Rhazi, Francesca Carapella. This paper develops a framework to study the interaction between banking, price dynamics, and monetary policy. Deposit contracts are written in nominal terms: if prices unexpectedly fall, the real value of banks' existing obligations increases. Banks default, panics precipitate, economic activity declines. If banks default, aggregate demand for cash increases because financial intermediation provided by banks disappears. When money supply is unchanged, the price level drops, thereby providing incentives for banks to default. Active monetary policy prevents banks from failing and output from falling. Deposit insurance can achieve the same goal but amplifies business cycle fluctuations by inducing moral hazard. Full Text



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Otmane El Rhazi

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Monday, 23 March 2015

2015-017: Crowding Out Effects of Refinancing on New Purchase Mortgages

Otmane El Rhazi, Steve A. Sharpe and Shane M. Sherlund. We present evidence that binding mortgage processing capacity constraints reduce mortgage originations to borrowers of low to modest credit quality. Mortgage processing capacity constraints typically bind when the demand for mortgage refinancing shifts outward, usually because of lower mortgage rates. As a result, high capacity utilization leads mortgage lenders to ration mortgage credit, completing mortgages that require less underwriting resources, and are thus less costly, to produce. This is hypothesized to have a particularly adverse impact on the ability of low- to modest-credit-quality borrowers to obtain mortgages. What is more, we show that, by lowering capacity utilization, a rise in interest rates can, under certain circumstances, induce an increase in mortgage originations to borrowers of low to modest credit quality. In particular, we find fairly large effects for purchasing borrowers of modest credit quality, in which we find that a decrease in capacity utilization of 4 applications per mortgage employee (similar to that observed from 2012 to 2013) could result in increased purchase mortgage originations, as the relaxed capacity constraint at least partially offsets the higher cost of mortgage credit. Full Text



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Otmane El Rhazi

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Friday, 20 March 2015

IFDP2015-1131: The Systematic Component of Monetary Policy in SVARs: An Agnostic Identification Procedure

Otmane El Rhazi, Jonas E. Arias, Dario Caldara, and Juan F. Rubio-Ramirez. Following Leeper, Sims, and Zha (1996), we identify monetary policy shocks in SVARs by restricting the systematic component of monetary policy. In particular, we impose sign and zero restrictions only on the monetary policy equation. Since we do not restrict the response of output to a monetary policy shock, we are agnostic in Uhlig's (2005) sense. But, in contrast to Uhlig (2005), our results support the conventional view that a monetary policy shock leads to a decline in output. Hence, our results show that the contractionary effects of monetary policy shocks do not hinge on questionable exclusion restrictions. Full Text



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Otmane El Rhazi

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2015-016: Have Distressed Neighborhoods Recovered? Evidence from the Neighborhood Stabilization Program

Otmane El Rhazi, Jenny Schuetz, Jonathan Spader, and Alvaro Cortes. During the 2007-2009 housing crisis, concentrations of foreclosed and vacant properties created severe blight in many cities and neighborhoods. The federal Neighborhood Stabilization Program (NSP) was established to help mitigate distress in hard-hit areas by funding the rehabilitation or demolition of troubled properties. This paper analyzes housing market changes in areas that received investments during the second round of NSP funding, focusing on seven large urban counties. Grantees used NSP to invest in census tracts with high rates of distressed and vacancy properties, and tracts that had previously received other housing subsidies. The median NSP tract received quite sparse investment, relative to the overall housing stock and the initial levels of distress. Analysis of housing market outcomes indicates the recovery has been uneven across counties and neighborhoods. In a few counties, there is some evidence that NSP2 activity is correlated with improved housing outcomes. Full Text



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Otmane El Rhazi

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2015-015: Consumers' Attitudes and Their Inflation Expectations

Otmane El Rhazi, Michael Ehrmann, Damjan Pfajfar, and Emiliano Santoro. This paper studies consumers' inflation expectations using micro-level data from the Surveys of Consumers conducted by University of Michigan. It shows that beyond the well-established socio-economic factors such as income, age or gender, other characteristics such as the households' financial situation and their purchasing attitudes are important determinants of their forecast accuracy. Respondents with current or expected financial difficulties, pessimistic attitudes about major purchases, or expectations that income will go down in the future have a stronger upward bias in their expectations than other households. However, their bias shrinks by more than that of the average household in response to increasing media reporting about inflation. Equivalent results are found during recessions. Full Text



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Otmane El Rhazi

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