Archive for the ‘interesting research’ Category

The coldblooded researcher in me loved the financial crisis, deep recession, and changes in government policies.  Variation in the real world allows us to learn about the real world.  But so far, I have seen little research that actually uses these events well. Thinking about how I do research, I think there are three reasons why theory is moving first.  First, the most mundane reason: in many cases, data has not become available to test things well yet. Second, theory at this point is easier because the crisis has brought to light lots of relatively-unstudied topics. Economic theory is often about constructing mathematical versions of the theories exposited by market participants. This exercise allows us to check logical arguments, expose prerequisites, and study optimal policy responses. Finally, while a big event would seem to be very informative, it is also very complicated – everything moved.  For example, one might think this is a great time to look at how a movement in house prices affects household spending. But when house prices moved, so did the stock market, the local labor market, the national and local deficits, and so forth, so that any change in household spending caused by house prices is conflated with spending movements caused by all sorts of other things.

So what have we learned? (more…)

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The Bush administration is working on a plan to help homeowners at risk of default.

This would be the second time this year that legislators intervene to help homeowners; in July, President Bush already signed legislation to help borrowers to refinance at more affordable rates. For an academic analysis of that legislation and the way it impacted taxpayers, homeowners, and the financial industry, see a recent paper by Mian, Sufi and Trebbi. Mian and coauthors argue that special interest campaign contributions from the financial services industry and local constituencies predict Congressional voting patterns when it comes to recent government interventions. (more…)

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