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Racial differences in short-run earnings stabilityand implications for credit markets

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  • Raphael W. Bostic
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    Abstract

    This paper examines the claim that observed racial differences in rejection rates for mortgage applications, which persist after controlling for many relevant factors, are due to racial differences in short-run earnings stability, which has not typically been included in empirical tests. The evidence does not support the proposition that blacks suffer from greater earnings instability than comparable whites, as few consistent significant differences between black and white earnings volatility are found. Only in the case of drastic earnings shocks with persistent effects does the possibility of significant racial differences reasonably remain. In general, racial differences in earnings stability appear to be minor and are unlikely to result in substantial differences in creditworthiness

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    File URL: http://www.federalreserve.gov/pubs/feds/1997/199734/199734abs.html
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    File URL: http://www.federalreserve.gov/pubs/feds/1997/199734/199734pap.pdf
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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1997-34.

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    Date of creation: 1997
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    Handle: RePEc:fip:fedgfe:1997-34

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    Related research

    Keywords: Discrimination in consumer credit ; Mortgages;

    References

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    1. Berkovec, James A, et al, 1994. "Race, Redlining, and Residential Mortgage Loan Performance," The Journal of Real Estate Finance and Economics, Springer, vol. 9(3), pages 263-94, November.
    2. Alicia H. Munnell, 1992. "Mortgage lending in Boston: interpreting HMDA data," Working Papers 92-7, Federal Reserve Bank of Boston.
    3. James A. Berkovec & Glenn B. Canner & Stuart A. Gabriel & Timothy H. Hannan, 1994. "Race, redlining, and residential mortgage loan performance," Proceedings, Federal Reserve Bank of Philadelphia, pages 263-298.
    4. Raphael W. Bostic, 1997. "The role of race in mortgage lending: revisiting the Boston Fed study," Finance and Economics Discussion Series 1997-2, Board of Governors of the Federal Reserve System (U.S.).
    5. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, October.
    6. Gottschald, Peter T, 1982. "Earnings Mobility: Permanent Change or Transitory Fluctuations," The Review of Economics and Statistics, MIT Press, vol. 64(3), pages 450-56, August.
    7. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, vol. 59(5), pages 1221-48, September.
    8. Paul Ong & Janette Lawrence, 1995. "Race and employment dislocation in California’s aerospace industry," The Review of Black Political Economy, Springer, vol. 23(3), pages 91-101, March.
    9. Lillard, Lee A & Willis, Robert J, 1978. "Dynamic Aspects of Earning Mobility," Econometrica, Econometric Society, vol. 46(5), pages 985-1012, September.
    10. William C. Hunter & Mary Beth Walker, 1995. "The cultural affinity hypothesis and mortgage lending decisions," Working Paper Series, Issues in Financial Regulation 95-8, Federal Reserve Bank of Chicago.
    11. Christopher D. Carroll, 1991. "Buffer stock saving and the permanent income hypothesis," Working Paper Series / Economic Activity Section 114, Board of Governors of the Federal Reserve System (U.S.).
    12. Hunter, William C & Walker, Mary Beth, 1996. "The Cultural Affinity Hypothesis and Mortgage Lending Decisions," The Journal of Real Estate Finance and Economics, Springer, vol. 13(1), pages 57-70, July.
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