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NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Christopher Foote

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Working Papers

May 2012Why Did So Many People Make So Many Ex Post Bad Decisions? The Causes of the Foreclosure Crisis
with Kristopher S. Gerardi, Paul S. Willen: w18082
We present 12 facts about the mortgage crisis. We argue that the facts refute the popular story that the crisis resulted from finance industry insiders deceiving uninformed mortgage borrowers and investors. Instead, we argue that borrowers and investors made decisions that were rational and logical given their ex post overly optimistic beliefs about house prices. We then show that neither institutional features of the mortgage market nor financial innovations are any more likely to explain those distorted beliefs than they are to explain the Dutch tulip bubble 400 years ago. Economists should acknowledge the limits of our understanding of asset price bubbles and design policies accordingly.
June 2009Reducing Foreclosures: No Easy Answers
with Kristopher Gerardi, Lorenz Goette, Paul Willen: w15063
This paper takes a skeptical look at a leading argument about what is causing the foreclosure crisis and distills some potential lessons for policy. We use an economic model to focus on two key decisions: the borrower's choice to default on a mortgage and the lender's subsequent choice whether to renegotiate or "modify" the loan. The theoretical model and econometric analysis illustrate that "unaffordable" loans, defined as those with high mortgage payments relative to income at origination, are unlikely to be the main reason that borrowers decide to default. In addition, this paper provides theoretical results and empirical evidence supporting the hypothesis that the efficiency of foreclosure for investors is a more plausible explanation for the low number of modifications to date than co...

Published: Acemoglu, Daron, Kenneth Rogoff, and Michael Woodford (eds.) NBER Macroeconomics Annual 2009, Volume 24. Chicago: University of Chicago Press, 2010.

October 1997The Surprising Symmetry of Gross Job Flows
w6226
A large literature attempts to explain the asymmetric behavior of job destruction and job creation over the business cycle. This paper contends that much of this asymmetry is spurious. Analyzing gross flows in relation to the net flow virtually eliminates cyclical asymmetry in annual data and substantially reduces it in quarterly data. To the extent that gross flows are symmetric, there is a fundamental identification problem in moving between gross flows and the net flow that is reminiscent of the earlier empirical literature on sectoral shifts.

Contact and additional information for this authorAll NBER papers and publicationsNBER Working Papers onlyInformation about this author at RePEc

 
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