Leonard Nakamura

• PhD
• Federal Reserve Bank Of Philadelphia

Purpose The current era of globalization is dominated by the rise of investments in intangible capital rather than tangible capital – the ascendance of creativity over plant and equipment. This brief paper is motivated by the possibility that emerging market economies such as Morocco might take greater advantage of new tools and policies designed...

In this paper, we use credit rating data from two large Swedish banks to elicit evidence on banks’ loan monitoring ability. For these banks, our tests reveal that banks’ internal credit ratings indeed include valuable private information from monitoring, as theory suggests. Banks’ private information increases with the size of loans. However, our t...

Holding gains and losses and default losses play key roles in the operations and reported income of financial intermediaries and other businesses, but are excluded from the national accounts definition of income. Measures that combine income and holding gains/losses and that adjust the income of lenders for predictable default losses are needed to...

We develop an experimental methodology that values "free" digital content through the lens of a production account and is consistent with the framework of the national accounts. We build upon the work in Nakamura, et al. (2016) by combining marketing-and advertising-supported content and find that the impact of "free" digital content on U.S. gross...

The accuracy of appraisals came into scrutiny during the housing crisis, and a set of policies and regulations was adopted to address the conflict-of-interest issues in the appraisal practices. In response to an investigation by the New York State Attorney General's office, the Home Valuation Code of Conduct (HVCC) was agreed to by Fannie Mae, Fred...

Home appraisals are produced for millions of residential mortgage transactions each year, but appraisals are rarely below the transaction price. We exploit a unique dataset to show that the mortgage application process creates an incentive to substitute the transaction price for the true appraised value when the latter is lower. We relate the frequ...

The current era of globalization is dominated by the rise of investments in intangible capital rather than tangible capital — the ascendance of creativity over plant and equipment. This brief paper is motivated by the possibility that emerging market economies such as Morocco might take greater advantage of new tools and policies designed for this...

“Free” consumer entertainment and information from the Internet, largely supported by advertising revenues, has had a major impact on consumer behavior. Some economists believe that measured gross domestic product (GDP) growth since 2000 is too low because it excludes online entertainment (Brynjolfsson and Oh 2012; Ito 2013). Similar large effects...

Brent Moulton and Nicole Mayerhauser (2015) point out that, for more than 50 years, economists have featured the concept of human capital in their models of labor, growth, productivity, and distribution of income. The authors recommend the addition to the System of National Accounts (SNA) of supplemental person-level accounts: i.e., a System of Per...

We define a class of bias problems that arise when purchasers shift their expenditures among sellers charging different prices for units of precisely defined and interchangeable product items that are nevertheless regarded as different for the purposes of price measurement. For business-to-business transactions, these shifts can cause sourcing subs...

During the housing crisis, it came to be recognized that inflated home mortgage appraisals were widespread during the subprime boom. The New York State Attorney General’s office investigated this issue with respect to one particular lender and Fannie Mae and Freddie Mac. The investigation resulted in an agreement between the Attorney General’s offi...

Practically all industrialized economies restrict the length of time that credit bureaus can retain borrowers’ negative credit information. There is, however, a large variation in the permitted retention times across countries. By exploiting a quasi-experimental variation in this retention time, we investigate what happens when negative information...

Around the globe, credit bureaus restrict the length of time that negative credit information can be retained. By exploiting a quasi-experimental variation in retention times of negative credit information, we find that a prolonged retention time increases the need for and access to credit and reduces the likelihood to default. In both regimes, les...

Rapid house-price depreciation and rising unemployment were the main drivers of the huge increase in mortgage default during the downturn years of 2007 to 2010. However, mortgage default was also partly driven by an increased reliance on alternative mortgage products such as pay-option ARMs and interest-only mortgages, which allow the borrower to d...

The Innovation Union initiative of the European Union focuses on product and process innovation for tangible goods. The authors argue that it is essential to extend the scope of the initiative to include innovation for financial sector products, processes, and regulatory approaches. They make this argument using examples of financial sector innovat...

This paper sets forth a discussion framework for the information requirements of systemic financial regulation. It specifically describes a potentially large macro-micro database for the U.S. based on an extended version of the Flow of Funds. I argue that such a database would have been of material value to U.S. regulators in ameliorating the recen...

Abstract Technology effects, business process development, and productivity growth are considered in the context of a single company: Wal-Mart. The starting point is the 2001 McKinsey Global Institute report, which finds that over 1995–2000, a quarter of U.S. productivity growth is attributable to the retail industry, and almost a sixth of that is...

This paper sets forth a discussion framework for the information requirements of systemic financial regulation. It specifically describes a potentially large macro-micro database for the U.S. based on an extended version of the Flow of Funds. I argue that such a database would have been of material value to U.S. regulators in ameliorating the recen...

We use a large scanner price dataset to study grocery price dynamics. Previous analyses based on store scanner data emphasize differences in price dynamics across products. However, we also document large differences in price movements across different grocery store chains. A variance decomposition indicates that characteristics at the level of the...

This paper explores the link between the house-price expectations of mortgage lenders and the extent of subprime lending. It argues that bubble conditions in the housing market are likely to spur subprime lending, with favorable price expectations easing the default concerns of lenders and thus increasing their willingness to extend loans to risky...

We empirically study how the underlying riskiness of the pool of home equity line of credit originations is affected over the credit cycle. Drawing from the largest existing database of U.S. home equity lines of credit, we use county-level aggregates of these loans to estimate panel regressions on the characteristics of the borrowers and their loan...

We empirically study how the underlying riskiness of the pool of home equity line of credit originations is affected over the credit cycle. Drawing from the largest existing database of U.S. home equity lines of credit, we use county-level aggregates of these loans to estimate panel regressions on the characteristics of the borrowers and their loan...

This paper presents evidence on the impact of the housing bubble, flood of high risk mortgage lending, and subsequent meltdown in homeownership. We point to agency and information problems in the mortgage origination and securitization market; incomplete risk transfer; and underassessment of systemic risk. These factors and their relationship to ex...

In this paper, the authors use credit rating data from two Swedish banks to elicit evidence on banks' loan monitoring ability. They test the banks' ability to forecast credit bureau ratings, and vice versa, and show that bank ratings are able to predict future credit bureau ratings. This is evidence that bank credit ratings, consistent with theory,...

In this paper we use credit rating data from two Swedish banks to elicit evidence on these banks’ loan monitoring ability. We do so by comparing the ability of bank ratings to predict loan defaults relative to that of public ratings from the Swedish credit bureau. We test the banks’ abilility to forecast the credit bureau’s ratings and vice v...

With house prices often below the face value of mortgages these days, the expected return on many mortgages has tumbled, since one of the major forces supporting mortgages, the collateral, has weakened. One source of these mortgage problems has been the validity of the home appraisal, which is supposed to be an objective and expert dollar valuation...

Over the course of the recent house price bubble in the United States, the price of homes rose rapidly from 1999 Q4 to 2005 Q4 (11.3% annually as measured by the Case-Shiller index, and 8.4% annually as measured by the Federal Housing Financing Agency) but slowly as measured by owner equivalent rents (3.4%), so measured core inflation remained rela...

In this paper the author relates the measurement of intangibles to the project of measuring the sources of growth. He focuses on three related and difficult areas of the measurement of national income: the measurement of new goods, the deflation of intangible investment, and the divergence between the social and private valuations of intangible ass...

In this paper I relate the measurement of intangibles to the project of measuring the sources of growth. I focus on three related and difficult areas of the measurement of national income: the measurement of new goods, the deflation of intangible investment, and the divergence between the social and private valuations of intangible assets. I argue...

Until the end of 1977, the U.S. consumer price index for rents tended to omit rent increases when units had a change of tenants or were vacant, biasing inflation estimates downward. Beginning in 1978, the Bureau of Labor Statistics (BLS) implemented a series of methodological changes that reduced this nonresponse bias, but substantial bias remained...

People make decisions based on information. Often, with hindsight, they could have made better choices. Economics faces a similar problem: Economic data, when first released, are often inaccurate and may subsequently be revised. In "The Mismeasured Personal Saving Rate Is Still Useful: Using Real-Time Data to Improve Forecasting," Leonard Nakamura...

Is it possible to forecast using poorly measured data? According to the permanent income hypothesis, a low personal saving rate should predict rising future income (Campbell, 1987). However, the U.S. personal saving rate is initially poorly measured and has been repeatedly revised upward in benchmark revisions. The authors use both conventional and...

Using Compustat data, we document that prior to 1980, large R&D per-forming firms had higher R&D intensity (R&D/Sales) than small firms in the same industries. Over the course of the next two decades, in these same in-dustries, small firms came to rival and even surpass large firms in terms of R&D intensity. During this period, corporate R&D intens...

Two recent studies have concluded that for roughly four decades the measure of inflation for rents in the U.S. consumer price index was substantially underestimated. Why should this mismeasurement be of concern? In “Gimme Shelter! Rents Have Risen, Not Fallen, Since World War II,” Len Nakamura explains that rents are important in measuring the pric...

This article presents a brief overview of the national income accounts. It summarizes the main parts of accounts and situates them within the efforts of economists to quantify economic activity and economic well-being. The author argues that these statistics are necessarily provisional and imperfect but nevertheless extremely useful. Some current d...

Initially published estimates of the personal saving rate from 1965 Q3 to 1999 Q2, which averaged 5.3 percent, have been revised up 2.8 percentage points to 8.1 percent, as we document. We show that much of the initial variations in personal saving rate across time was pure noise. Nominal disposable personal income has been revised upward an averag...

This paper addresses two aspects of advertising: its role in supporting entertainment and news, and its role as an investment. The author argues that in both roles advertising’s contribution to output is being undermeasured in the national income accounts. In some cases one unit of nominal advertising input should be counted as two units of real ou...

The authors provide evidence that transactions accounts help financial intermediaries monitor borrowers by offering lenders a continuous stream of data on borrowers’ account balances. This information is most readily available to commercial banks, but other intermediaries, such as finance companies, also have access to such information at a cost. U...

Initially published estimates of the personal saving rate from 1965 Q3 to 1999 Q2, which averaged 5.3 percent, have been revised up 2.8 percentage points to 8.1 percent, as we document. We show that much of the initial variation in the personal saving rate across time was meaningless noise. Nominal disposable personal income has been revised upward...

Leonard Nakamura states that despite consumers’ lack of respect for advertising, it nonetheless plays a significant role in the economy. For one thing, it helps consumers find out about new products, and new products have been rising in economic importance. It also plays a role in subsidizing broadcast entertainment and news programs. Ultimately, N...

We provide evidence that transactions accounts help financial intermediaries monitor borrowers by offering lenders a continuous stream of data on borrowers' account balances. This information is most readily available to commercial banks, but other intermediaries, such as finance companies, also have access to such information at a cost. Using a un...

Until the end of 1977, the method used in the U.S. consumer price index (CPI) to measure rent inflation tended to omit rent increases when units had a change of tenants or were vacant. Since such units typically had more rapid increases in rents than average units, this response bias biased inflation estimates downward. Beginning in 1978, the Burea...

Recent papers have questioned the accuracy of the Bureau of Labor Statistics' methodology for measuring rent increases and changes in implicit rents for owner-occupied housing. We compare the BLS estimates of increases in rents and owner-occupied housing costs to regression-based estimates using data from the American Housing Survey. A hedonic appr...

Leonard Nakamura suggests that a new era of heightened creative destruction that began in the late 1970s also ushered in a new era of heightened competition. Such intensified competition has made leaders of large industrial enterprises vulnerable to a level of uncertainty previously reserved for managers of small and new firms. Consequently, manage...

The views expressed here are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of Philadelphia or of the Federal Reserve System. We would like to thank David Genesove, Jack Triplett, and members of the Federal Reserve System Committee on Applied Microeconomics for valuable comments. David Genesove kindly supplied...

Which is more likely to encourage creativity and innovation: a centralized or a decentralized system of support? That is, should large organizations and recognized experts determine who gets funding for their ideas? Or should small businesses, patrons, and foundations provide the primary support for innovation? In " Let a Hundred Flowers Bloom! Dec...

Do checking accounts help banks monitor borrowers? A borrower’s checking account provides a bank with exclusive access to a continuous stream of borrower data, namely, the borrower’s checking account balances at the bank. Using a unique set of data that includes monthly and annual information on small-business borrowers at an anonymous Canadian ban...

Leonard Nakamura examines this paradox of low savings accompanied by increased wealth.

This paper argues that the rate of intangible investment – investment in the development and marketing of new products – accelerated in the wake of the electronics revolution in the 1970s. The paper presents preliminary direct and indirect empirical evidence that US private firms currently invest at least $1 trillion annually in intangibles. This r...

From 1900 to 1935, Argentina evolved from an economy highly dependent on external, primarily British, finance to one more nearly self-sufficient. The authors examine the failure of domestic finance to adequately fill the void left by the decline of London and the breakdown of the world financial system in the interwar period, when neither the Bueno...

Until the end of 1977, the method used to measure changes in rent of primary residence in the U.S. consumer price index (CPI) tended to omit price changes when units changed tenants or were temporarily vacant. Since such units typically had more rapid increases in rents than average units, omitting them biased inflation estimates downward. Beginnin...

This paper constructs a data set to document firms' expenditures on an identifiable list of intangible items and examines the implications of treating intangible spending as an acquisition of final (investment) goods on GDP growth for Canada. It finds that investment in intangible capital by 2002 is almost as large as the investment in physical cap...

this article, we will look at two key consequences of these accounting conventions. First, not only are reported corporate profits understated, they're understated more than they used to be because corporations are investing more of their cash flow in intangible assets. As a result, U.S. price/earnings ratios are overstated. Second, U.S. national i...

MEASURING HOUSING SERVICES INFLATION Recent papers have questioned the accuracy of the Bureau of Labor Statistics' methodology for measuring implicit rents for owner-occupied housing. We propose cross-checking the BLS statistics using data on owner-occupied and rental housing from the American Housing Survey. A hedonic approach that explicitly calc...

In the 18th century, Adam Smith offered his theory of the invisible hand and the view that perfect competition is the main spur to economic efficiency. The theory of the invisible hand, as it has evolved in modern economic thought, treats creative activity as being outside the scope of economic theory. In the 20th century, Joseph Schumpeter offered...

The computerization of retailing has made price dispersion a norm in the United States, so that any given list price or transactions price is an increasingly imperfect measure of a product's resource cost. As a consequence, measuring the real output of retailers has become increasingly difficult. Food retailing is used as a case study to examine da...

We show that bank branching tends to mitigate localized market power by broadening the geographic scope of competition among banks, even though branch banking allows banks to differentiate themselves through their choices of branch locations. Banking services at peripheral locations will be priced more competitively when those locales are served by...

If a product sells for $3 this week at the local supermarket and $2 next week, what is the "real" price? What if that same product has a different price at a different store? Thanks to scanner technology, food prices differ a lot these days because they can be changed quickly and easily. How do our official statistics take these price movements int...

This paper reports the first stage of a project to recover Argentine stock market data for the entire 20th century. The authors find that real rates of return on Argentine stocks and bonds after 1920 were above those in the Belle Époque, and that they were consistent with the view that in the postwar period Argentina remained firmly integrated with...

Has American economic progress slowed dramatically—or even stopped? Or are the statistics wrong: has the U.S. economy been experiencing strong growth, but our official measures fail to reflect it? In this article, Leonard Nakamura explores how economic progress is measured and discusses some of the policy implications that arise from alternative me...

The evidence presented in this special issue supports the view that preexisting information held by mortgage lenders plays an important role in mortgage approvals. This argues for mortgage lending programs that make efficient use of lender information, and it supports the importance of local financial intermediaries for lending. It also suggests th...

The primary aim of the paper is to place current methodological discussions in macroeconometric modeling contrasting the ‘theory first’ versus the ‘data first’ perspectives in the context of a broader methodological framework with a view to constructively appraise them. In particular, the paper focuses on Colander’s argument in his paper “Economist...

We develop a model of mortgage redlining which captures the dynamic information gathering which is implied by the use of appraisals in mortgage granting. In our model, the precision of appraisals depends on the quantity of previous home sales. In turn, the precision of appraisals influences current home sales, since when appraisals are inaccurate,...

This Economic Letter analyzes the extent to which recalls have led to fewer U.S. imports from China in affected industries and whether there has been a general backlash against the "Made in China" label.

Female self-employment has been increasing steadily over the last years in many countries. However, not much is know about women?s decision to become self-employed, especially in Europe. Some few studies typically conclude that most women choose self-employment because it offers more flexibility to combine work and family responsibilities or becaus...

A dynamic credit market is modeled in which the production and processing of information leads to alternating and persistent periods of growth and contraction. In the model, the number of projects engaged in determines the precision of estimates of future returns obtained from current investment. Shocks to underlying returns to risky projects are m...

This paper examines dynamic information losses associated with loan terminations. We assume that the aggregated returns of current borrowers contain information about the mean returns to future borrowers. In a competitive loan market, the value of this information is not fully internalized by individual borrowers and lenders, and loan decisions fai...