Front Matter Page
© 2007 International Monetary Fund
August 2007
IMF Country Report No. 07/265
United States: Selected Issues
This Selected Issues paper for the United States was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on July 11, 2007. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of the United States or the Executive Board of the IMF.
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Front Matter Page
INTERNATIONAL MONETARY FUND
UNITED STATES
Selected Issues
Prepared by R. Balakrishnan, T. Bayoumi, K. Mathai, M. Mühleisen, A. Swiston, V. Tulin (all WHD); A. Bhatia, J. Kiff, P. Mills (all MCM); C. Gorter, I. Rial (both STA)
Approved by Western Hemisphere Department
July 11, 2007
Contents
Part I. International Links
I. Summary of Foreign Entanglements: Measuring the Size and Source of Spillovers Across Industrial Countries
Figure 1. Responses to U.S. GDP Across Eight VARs
Figure 2. Decomposition of Responses to U.S. GDP
II. Summary of The Ties that Bind: Measuring International Bond Spillovers Using Inflation-Indexed Bond Yields
Table 1. Variance Decompositions After 50 Days
III. Summary of Globalization, Gluts, Innovation, or Irrationality: What Explains the Easy Financing of the U.S. Current Account Deficit?
Figure 1. Financing of the U.S. Current Account Deficit
Part II. Financial Innovation
IV. New Landscape, New Challenges: Structural Change and Regulation in the U.S. Financial Sector
A. Topography of the System
B. Regulatory Philosophy and Structure
C. Emerging Challenges
D. Broad Policy Implications
E. Specific Policy Considerations
Abbreviations and Acronyms
References
Figure 1. The Shrinking Core
Figure 2. Waves of Securitization
Figure 3. Core vs. Periphery
Figure 4. Inside the Core
V. Money for Nothing and Checks for Free: Recent Developments in U.S. Subprime Mortgage Markets
A. Origins and History of the Subprime Mortgage Market
B. The Rapid Recent Expansion of Subprime Lending
C. What Prompted the Subprime “Crisis”?
D. The Impact on Financial Institutions
E. The Impact on Households
F. Risk Management and Consumer Protection in the Securitization Model
G. Resolving the Policy Tradeoff: Palliatives versus Future Reforms
H. Conclusion
References
Box 1. Twisting by the Pool: The Mechanics of Mortgage Securitization
Box 2. Brothers in ARMs: Hybrids, Options, IOs, Neg-Ams, and Teasers
Figure 1. Homeownership Rate
Figure 2. Subprime and FHA Mortgage Originations
Figure 3. All Mortgage Originations
Figure 4. Declining Mortgage Holdings of Depository Institutions
Figure 5 ARM Delinquencies and Foreclosures
Figure 6. Subprime ARMs: Delinquencies by Mortgage Vintage Year
Figure 7. Delinquency Rates for Adjustable-Rate and Fixed-Rate Mortgages
Figure 8. Early Payment Defaults
Part III. Fiscal Issues
VI. Summary of U.S. Revenue Surprises: Are Happy Days Here to Stay?
Figure 1. Contribution to Revenue Increase, 2004–2006
Figure 2. Out-of-Sample Revenue Forecast, 2007–2009
VII. Summary of Applying The GFSM 2001 Framework to U.S. Fiscal Data
Table 1. Statement of Federal Government Operations
Table 2. Integrated Balance Sheet for the Federal Government