Hutchins Roundup: Nonbank mortgages, pandemic fiscal policies, and more

What’s the latest thinking in fiscal and monetary policy? The Hutchins Roundup keeps you informed of the latest research, charts, and speeches. Want to receive the Hutchins Roundup as an email? Sign up here to get it in your inbox every Thursday.

Nonbanks improve mortgage market service quality

Increased use of nonbanks to originate U.S. mortgages has improved the quality of mortgage services, according to Ahmet Degerli of the Federal Reserve Board and Jing Wang of the University of Missouri. Nonbanks—lenders other than traditional deposit-taking banks such as Quicken Loans and Guaranteed Rate—tend to disproportionately serve lower-income populations. In their county-level analysis, the authors find that a one standard-deviation increase in nonbank market share reduces nonbank mortgage-related complaints to the Consumer Financial Protection Bureau by 18%. As their market share grew, nonbanks invested more in technology and specialized in serving lower-income customers, thereby increasing quality and reducing complaints. The authors find that this link between nonbank market share in the mortgage market and quality of service is stronger in counties where there are larger Hispanic or non-white populations.

Pandemic support programs generate inflation

How much did COVID-related fiscal policies contribute to the current global surge in inflation? Examining the differences across the support packages from several advanced economies, Òscar Jordà and Fernanda Nechio of the Federal Reserve Bank of San Francisco find that a 5 percentage point increase in direct transfers relative to trend increases inflation and wages by around 2.5 percentage points. Furthermore, they find that the role inflation expectations play in wage dynamics has increased considerably: Prior to the pandemic, a 1 percentage point increase in inflation expectations would translate into a 0.2 percentage point increase in wages; today, a 1 percentage point increase in inflation expectations is expected to translate into a 1 percentage point increase in wages. The authors stress that central bank credibility is needed to manage inflation expectations.

White support for welfare depends on the racial composition of welfare recipients

Do Americans form opinions about welfare based on the race of welfare recipients? In experiments with nearly 10,000 respondents, Jesper Akesson of The Behavioralist, a U.K. research consultancy and co-authors find that white Americans do. First, white Americans overestimate the percentage of the U.S. population that is Black by a factor of more than two and overestimate the percentage of welfare recipients who are Black by almost as much. Second, white respondents who think that the proportion of welfare recipients who are Black is relatively high are less likely to support pro-welfare organizations and more likely to support anti-welfare organizations. The perceived racial composition of welfare recipients does not change Black respondents’ answers. Third, simply asking white participants about the racial composition of welfare recipients reduces their support for welfare. Lastly, when accurate data on the racial composition of welfare recipients was given to white respondents, they were not more supportive of welfare. The authors hypothesize that even though accurate information might lower white respondents’ estimates of the prevalence of Black welfare recipients, thus leading to support for welfare, the mention of race may trigger antipathy to welfare that works in the opposite direction.

Chart of the week: Increasingly large raise for switching jobs versus staying put

Monthly median wage growth for job switchers vs. job stayers

Chart courtesy of the Wall Street Journal

Quote of the week:

“Some commentators have pointed out that the MPC’s [the Bank of England’s Monetary Policy Committee] central forecast projects a prolonged recession over the next quarters, and that this slack would yield inflation falling below the target in year three. Therefore, they claim inflation to be vanquished already and indeed that monetary policy already has become contractionary. Further, since the shocks hitting the U.K. economy have come mostly from external sources – supply chain frictions, energy prices, war – they claim that the MPC need not tighten further, but rather can ‘look through’ these shocks, since they will mean-revert,” says Catherine Mann, Member of the Bank of England’s Monetary Policy Committee.

“…[W]hile some elements of this line of argument might hold in normal times, it is based on an incomplete view of the inflation process and of the channels through which monetary policy can achieve our remit. Specifically, in today’s environment, inflation expectations take a central role, alongside the standard channel of aggregate demand and slack. Looking through the lens of inflation expectations, achieving the remit depends on ensuring that inflation expectations in the short-term do not become adaptive, and that medium-term inflation expectations do not drift, so that long-term expectations remain anchored.”

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