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    <title>EconStor Collection: Public Policy Discussion Papers, Federal Reserve Bank of Boston</title>
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    <title>The theory of life-cycle saving and investing</title>
    <link>http://hdl.handle.net/10419/59251</link>
    <description>Title: The theory of life-cycle saving and investing
&lt;br/&gt;
&lt;br/&gt;Authors: Bodie, Zvi; Treussard, Jonathan; Willen, Paul
&lt;br/&gt;
&lt;br/&gt;Abstract: How much should a family save for retirement and for the kids' college education? How much insurance should they buy? How should they allocate their portfolio across different assets? What should a company choose as the default asset allocation for a mandatory retirement saving plan? We believe that the life-cycle model developed by economists over the last fifty years provides guidance for making such decisions. The theory teaches us to view financial assets as vehicles for transferring resources across different times and outcomes over the life cycle, and that perspective allows households and planners to think about their decisions in a logical and rigorous way. This paper lays out and illustrates the basic analytical framework from the theory in nonmathematical terms, with the aim of providing guidance to financial service providers, consumers, and policymakers.</description>
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  <item rdf:about="http://hdl.handle.net/10419/59250">
    <title>Risk bearing, implicit financial services, and specialization in the financial industry</title>
    <link>http://hdl.handle.net/10419/59250</link>
    <description>Title: Risk bearing, implicit financial services, and specialization in the financial industry
&lt;br/&gt;
&lt;br/&gt;Authors: Wang, J. Christina; Basu, Susanto
&lt;br/&gt;
&lt;br/&gt;Abstract: What is the output of financial institutions? And how can we measure their nominal and, more importantly, real value, especially since many financial services are provided without explicit charges? This paper summarizes the theoretical result that, to correctly impute the nominal value of implicit financial service output, the user cost of money framework needs to be extended to take account of the systematic risk in financial instruments. This extension is easy to implement in principle: One can continue using the current imputation procedure, and the only change needed is to adjust the reference rates of interest for risk. The paper clarifies why the risk-related income is not part of the output-or equivalently, why risk bearing is not a service-of financial institutions. The paper next argues that, to measure real output, one must first explicitly specify and define the economic services produced by financial firms, a step that is absent from the user cost of money theory. Once it is established that only financial services, and not instruments, should be counted as the value added of financial firms, it follows that the quantity of services provided by these institutions is not necessarily in fixed proportion to the volume of instruments. The corollary is that the implicit price of financial services bears no definitive relationship with any reference rate. Instead, price deflators for financial services should be constructed using methods similar to those used for other services.</description>
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  <item rdf:about="http://hdl.handle.net/10419/59249">
    <title>Securitization and moral hazard: Evidence from credit score cutoff rules</title>
    <link>http://hdl.handle.net/10419/59249</link>
    <description>Title: Securitization and moral hazard: Evidence from credit score cutoff rules
&lt;br/&gt;
&lt;br/&gt;Authors: Bubb, Ryan; Kaufman, Alex
&lt;br/&gt;
&lt;br/&gt;Abstract: Mortgage originators use credit score cutoff rules to determine how carefully to screen loan applicants. Recent research has hypothesized that these cutoff rules result from a securitization rule of thumb. Under this theory, an observed jump in defaults at the cutoff would imply that securitization led to lax screening. We argue instead that originators adopted credit score cutoff rules in response to underwriting guidelines from Fannie Mae and Freddie Mac and offer a simple model that rationalizes such an origination rule of thumb. Under this alternative theory, jumps in default are not evidence that securitization caused lax screening. We examine loan-level data and find that the evidence is inconsistent with the securitization rule-of-thumb theory but consistent with the origination rule-of-thumb theory. There are jumps in the number of loans and in their default rate at credit score cutoffs in the absence of corresponding jumps in the securitization rate. We conclude that credit score cutoff rules provide evidence that large securitizers were to some extent able to regulate originators' screening behavior.</description>
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  <item rdf:about="http://hdl.handle.net/10419/59248">
    <title>Optimal retirement asset decumulation strategies: The impact of housing wealth</title>
    <link>http://hdl.handle.net/10419/59248</link>
    <description>Title: Optimal retirement asset decumulation strategies: The impact of housing wealth
&lt;br/&gt;
&lt;br/&gt;Authors: Sun, Wei; Triest, Robert K.; Webb, Anthony
&lt;br/&gt;
&lt;br/&gt;Abstract: We estimate the relationship between the returns on housing, stocks, and bonds, and simulate a variety of decumulation strategies incorporating reverse mortgages. We show that homeowner's reversionary interest, the amount that can be borrowed through a reverse mortgage, is a surprisingly risky asset. Under our baseline assumptions we find that the average household would be as much as 24 percent better off taking a reverse mortgage as a lifetime income relative to what appears to be the most common strategy: delaying tapping housing wealth until financial wealth is exhausted and then taking a line of credit. In addition, the results show that housing wealth displaces bonds in optimal portfolios, making the low rate of participation in the stock market even more of a puzzle.</description>
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