Julia Fonseca presented a new paper that explores the possibility that mortgage lock-in is the reason for the recent rise in house prices. The basic idea is that homeowners with low locked-in mortgage rates are reluctant to sell their homes and take on new mortgages at higher current rates, reducing housing supply and potentially driving up prices. There are many things outside the model (e.g. role of monetary policy, production of housing) but they are also not necessarily critical, as their goal is to isolate and quantify the specific effects of mortgage lock-in on housing market dynamics.
This was also my first time learning about a "housing ladder" model, which is basically a framework that captures how households move between different types of housing (e.g., from renting to owning starter homes to owning larger homes) over their lifecycle. This setup can be then used to study how factors like lock-in affect mobility and prices across different segments of the housing market.
Naz Koont presented her job market paper that explores how the availability of digital banking platforms impacts bank competition. The basic idea is that digital platforms allow banks to compete in new geographic markets without opening physical branches, potentially altering the competitive landscape. The paper also tackles a thorny identification challenge using a clever instrumental variables analysis based on cellular coverage patterns, which I thought was quite nice.
Jacob Conway presented his job market paper on how consumers respond to firm social stances. I thought he described his overall approach quite nicely using a simple equation that everyone could understand:
where each term is an “estimation target” for his empirical work.
A key step in his approach is to impute the ideological dimension of each consumer based on observables and use this classification for analysis. I found this method intriguing, but it also raised questions in my mind about how one should treat the potential errors-in-variables issue that could arise from this imputation process. This methodological concern could have implications for the interpretation and robustness of the results.
Lira Mota presented a new paper studying why some firms opt to have a complex debt structure. Their story is that firms strategically issue different types of bonds to cater to heterogeneous investor demands, thereby minimizing their cost of capital and diversifying their funding risk. This financially sophisticated behavior allows firms to increase their resilience to credit market shocks and potentially enhance firm value.
Two main questions that I had (which also came up in the audience) are:
- How do we distinguish the underwriter's incentives from the firms' incentives in issuing multiple bonds? It's unclear whether the observed complex debt structures are primarily driven by firms' strategic decisions or by underwriters pushing for more issuances to generate fees.
- Why aren't all firms engaging in this practice given the apparent benefits? If issuing multiple bond types truly provides such advantages in terms of cost reduction and risk diversification, it's puzzling that we don't see this behavior universally adopted across all firms.
Markus Bak-Hansen presented his job market paper examining dealer-customer relationships in over-the-counter (OTC) markets. Using data from a large European dealer, the paper finds that customers with strong relationships receive significantly lower bid-ask spreads and more frequent quotes. What I found particularly interesting is the role of salespeople in coordinating within the dealer organization to ensure relationship discounts are applied across asset classes.