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

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  • Raphael W. Bostic

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

Suggested Citation

  • Raphael W. Bostic, 1997. "Racial differences in short-run earnings stabilityand implications for credit markets," Finance and Economics Discussion Series 1997-34, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:1997-34
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    References listed on IDEAS

    as
    1. Raphael W. Bostic, "undated". "The Role of Race in Mortgage Lending: Revisiting the Boston Fed Study," Finance and Economics Discussion Series 1997-02, Board of Governors of the Federal Reserve System (U.S.).
    2. Lillard, Lee A & Willis, Robert J, 1978. "Dynamic Aspects of Earning Mobility," Econometrica, Econometric Society, vol. 46(5), pages 985-1012, September.
    3. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, vol. 59(5), pages 1221-1248, September.
    4. 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.).
    5. Paul Ong & Janette Lawrence, 1995. "Race and employment dislocation in California’s aerospace industry," The Review of Black Political Economy, Springer;National Economic Association, vol. 23(3), pages 91-101, March.
    6. Berkovec, James A & Canner, Glenn B. & Gabriel, Stuart A. & Hannan, Timothy H., 1994. "Race, Redlining, and Residential Mortgage Loan Performance," The Journal of Real Estate Finance and Economics, Springer, vol. 9(3), pages 263-294, November.
    7. Munnell, Alicia H. & Geoffrey M. B. Tootell & Lynn E. Browne & James McEneaney, 1996. "Mortgage Lending in Boston: Interpreting HMDA Data," American Economic Review, American Economic Association, vol. 86(1), pages 25-53, March.
    8. Gottschald, Peter T, 1982. "Earnings Mobility: Permanent Change or Transitory Fluctuations," The Review of Economics and Statistics, MIT Press, vol. 64(3), pages 450-456, August.
    9. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, July.
    10. 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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