Forecast Direct

Sayantani of the Anderson Forecast & the UCLA Ziman Center for Real Estate talks to Reid Taulor, research economist at the Dallas Fed. They discuss how regulation and increasing disaster risks can result in the unraveling of the private insurance market. The paper presents a simple model of a disaster market and an insurer of last resort operating in the market that’s not being provided for by private insurers. Using the case of California’s homeowners and insurance market, they further empirically estimate the effects of the California nonrenewal moratorium, a novel policy implemented by the California Department of Insurance to curb the growth of the FAIR plan.

Key Takeaways:

• As profit-maximizing firms, insurers rationally choose not to offer insurance to those who have an expected marginal cost above the regulated price, leading the riskiest consumers to receive coverage from the insurer of last resort (FAIR plan) in the residual market. Subsequently, the insurer of last resort does not solve any market failure but is necessary to guarantee full market coverage under strict price regulation.

• Zip codes impacted by the moratorium experienced a decrease in company-initiated non-renewals during the year the moratorium was active. However, this effect was short lived; insurers increased non-renewals by at least 80% in the year immediately following the expiration of the moratorium.

• They estimate that the moratorium did not slow the retreat of private firms from high-risk areas and may have even accelerated it. The number of policies written by the voluntary market declined by 200 one year after the moratorium, and the number of policies written by the FAIR Plan increased by 100.

• In order for firms to remain in the market in the long run, premiums must be reflective of the underlying risks. This can be achieved by either relaxing regulation, or investing in climate adaptation. Recent policy changes indicate that both strategies are being pursued in California.

Sayantani of the Anderson Forecast talks to Xuesong You, former Climate Research Economist at Freddie Mac. They discuss the how the availability of homeowners insurance influences the locational desirability of both existing homeowners and potential home buyers when searching for a new home. The analysis is especially relevant given the risks that consumers are facing when navigating homeownership, while dealing with an increasing number of wildfires and drastic changes in insurance availability over the recent years, across California.

Key takeaways:

* While most of the literature depends on home prices or values to estimate the desirability for a location, the use of granular parcel-level home loan application data allows more accurate assessment of the demand-side story for home-owners, isolated from any supply-based price impacts.

* The analysis delves into how the risk signals from private insurers indicating the lack of insurability at a location could influence household behaviors, adding new insights into the role that insurance markets can play in guiding fire adaptation.

* Existing homeowners of higher-risk properties are found to be more likely to search for homes in areas with lower fire hazards and less vegetation coverage compared to those who own and reside in low-risk properties.

* In terms of response from potential home-buyers searching for homes:

- For high-risk properties in high-risk communities that face the most challenge of obtaining insurance, application volume is found to decrease sharply, with a more pronounced reduction in years when private home insurance is less accessible. In contrast, the applications for low-risk properties in high-risk communities increased during the same period.

- Home buyers interested in high-risk properties are found to be more likely to come from areas that show lower concerns over climate change, with no significant changes in their income.

In this episode of the Forecast Direct, Thomas Ash of the UCLA Anderson Forecast talks to Professor Tony Cookson of the University of Colorado, Boulder, Leeds School of Business. They discuss the finance social media ecosystem, what it is, how it functions, and some key research findings related to it. This is especially important as social media takes a larger share of attention away from traditional media.

Key takeaways:

* Key social media platforms for finance include StockTwits, Twitter (“FinTwit”), and Seeking Alpha. On these roughly 80% of posts are bullish and coverage even includes many tiny to mid‑cap firms. By contrast, traditional media outlets show more negative‑tilted information and skew toward large firms.

* A useful way to characterize different parts of social media research is where it can act as a lens to view typical human behavior, versus social media's role as a participant, itself driving trading and volatility.

* There is a difference between firm‑Level vs. market‑level signals on social media. Different social media platforms talk about the same things but tend to disagree on the prospects of individual firms. At the firm level, spikes in social‑media sentiment mildly predict positive returns, while attention spikes tend to predict negative returns. At the aggregated market‑level however the opposite is true for both sentiment and attention, pointing to key differences between the firm and market level signals.

* Echo‑chamber dynamics and fake‑news proliferation can degrade both the quality of information impounded into prices and investors’ trust in genuine signals.

In this episode of the UCLA Anderson Forecast Direct podcast, Clement Bohr interviews Nobel Prize-winning economist Joseph Stiglitz. The discussion centers around Stiglitz's latest book, "The Road to Freedom" and on some of his recent work on optimal taxation of corporate profits in the presence of market power.

- Understanding Neoliberalism and its Shortcomings Stiglitz explains the concept of neoliberalism, highlighting its emphasis on deregulated markets and minimal government intervention. He discusses how the fundamental theorems of welfare economics have been misunderstood to justify unregulated markets and argues that unregulated markets often lead to exploitation and monopolization rather than competition.

- The Economic Impact of Neoliberal Policies Since 1980 Since the rise of neoliberalism in the 1980s, the US economy has grown more slowly, with most income gains going to the top of the income distribution, leading to increased inequality. He attributes the slower growth and increased inequality to neoliberal policies and references the 2008 financial crisis as a result of deregulation in financial markets.

- Proposal for Reform Stiglitz advocates for a shift to progressive capitalism, similar to the policies promoted by early 20th-century presidents like Teddy Roosevelt. He outlines the key pillars of progressive capitalism aimed at addressing low economic growth and high inequality.

- Optimal Taxation of Corporate Profits Stiglitz discusses his new academic paper on corporate taxes where introduces the concept of market power wealth and its importance in determining optimal corporate tax rates. He shows that higher corporate tax rates on profits can lead to more investment and a more efficient allocation of capital when firms are able to expense their capital investments and R&D expenditures.

In this episode of Forecast Direct, we feature Dr. William Lee, Chief Economist at the Milken Institute. Dr. Lee focuses on enhancing capital access, financial stability, and job creation by improving global economic and regulatory conditions. He works with policymakers, thought leaders, and market participants to develop actionable solutions. Our conversation explores the economic impacts of tariff and trade policies during the second Trump administration, the trajectory of foreign direct investment in the U.S., supply chain resilience, and the dynamics of bilateral versus multilateral trade negotiations.

Racial discrimination in any market is a sign of a market failure and needs to be quantitively identified, to prompt policy-based steps towards equity.

In this episode, UCLA real estate economist, Sayantani hosts Alina Arefeva, Assistant Professor at the Department of Real Estate and Urban Land Economics, Wisconsin School of Business, who will discuss the presence and extent of racial discrimination in the housing market, through analyzing the differential impact of eviction moratorium on minorities. Professor Arefeva studies discrimination through a housing search model, and empirically quantifies a significant drop in the relative rental-housing-based response ratio to African Americans, after the end of the COVID eviction moratorium. She provides potential policy implications of the findings and implore the need for further research to weigh the intensified discrimination with the benefit of having more security for existing minority renters.

The Macroeconomics of climate change provides frameworks to understand the overall impact. This approach complements the documented Microeconomic effects of climate change. In this episode, Forecast economist Thomas Ash hosts special guest Lint Barrage, Associate Professor and Chair of Energy and Climate Economics at ETH Zurich, to discuss important areas in this growing subfield such as the fiscal costs of climate change, clean innovation subsidies and recent updates to estimates of the economy-wide damages from climate change.

One of the most important questions today is about increasing inequality within the economy and society at large.

In this episode, we’re pleased to feature Mordecai Kurz, Joan Kenney Professor of Economics Emeritus at Stanford University, who will discuss his book The Market Power of Technology: Understanding the Second Gilded Age. Professor Kurz moves beyond the simple economic description of an economy comprised of labor and capital to a more complex one that includes technology and monopolization to uncover the important dynamics of inequality and the implications for an increasingly technological economy in the future.

After the meeting between President Biden and President Xi in San Francisco in November 2023, there has been a halt in the worsening of U.S.-China relations.

In this episode, we are joined by Martin Chorzempa, senior fellow from the Peterson Institute for International Economics, to talk about the latest developments in U.S.-China relations. Our discussion also covers the effects of the U.S. restrictions on semiconductor components on China over the past year, as well as the future prospects of this policy. We also explore the implications of China’s newly implemented data flow regulations for international businesses operating within the country.

This month, we feature Zhiyun Li hosting a conversation with Jesse Gourevitch on climate risk and property overvaluation in the U.S. Jesse Gourevitch is a postdoctoral fellow on the Economics Team at the Environmental Defense Fund. His research focuses on the economic impacts of climate change and adaptation to climate risks. We discuss his recent research exploring the magnitude, geographic distribution, and driving factors of unpriced flood risk in the U.S. housing market.