Working Papers
Unemployment Insurance and Macro-Financial (In)Stability
with Yavuz Arslan, Ahmet Degerli, Bulent Guler, and Burhan Kuruscu
We identify and study two mechanisms that can overturn the stabilizing effects of unemployment insurance (UI) policies. First, households in economies with more generous UI reduce their precautionary savings and borrow more in the mortgage market. Second, the overall share of mortgages as well as the share of mortgages with higher loan-to-income ratios on bank balance sheets increase. As a result, both bank and household balance sheets become more vulnerable to adverse shocks, which deepens recessions. We demonstrate the importance of these channels by employing a quantitative heterogeneous-agent general equilibrium model and by providing county-level empirical evidence from the U.S. housing and mortgage markets.
Bank of Canada, BIS, Ghent University, Indiana University, Lancaster University, Minneapolis Fed, Philly Fed, St. Louis Fed, University of Zurich, University of Liverpool, Barcelona Summer Forum, CEMLA/Dallas Fed Financial Stability Workshop, European Economic Association Conference, Econometric Society Meetings (North America and Asian), IFABS Conference, IBEFA Summer Meeting, Leuven Summer Event, Lisbon Macro Workshop, Midwest Finance Association Conference, Money, Macro and Finance Conference, SITE Conference, Swiss Society of Economics and Statistics Conference, T2M Macro Conference, Workshop in Empirical and Theoretical Macroeconomics (King’s College London), University of St. Gallen Workshop on Macroeconomic Implications of Housing, Household Finances, and Wealth Dynamics
“There is No Planet B”, but for Banks There are “Countries B to Z”: Domestic Climate Policy and Cross-Border Lending
with Emanuela Benincasa and Steven Ongena
We document that banks react to domestic climate policy stringency by increasing cross-border lending. We use loan fixed effects to control for loan demand and an instrumental variable strategy to establish causality. Consistent with a race to the bottom, the positive effect increases as the borrower country becomes less stringent and is absent if the borrower country is more stringent. Furthermore, climate policy stringency decreases loan supply to domestic borrowers with high carbon risk while increasing loan supply to high-risk borrowers abroad. Our results suggest that cross-border lending enables lenders to exploit the lack of global coordination in climate policies.
Banca d'Italia Workshop on Climate Risks, BOFIT Workshop, CAFRAL, Croatian Central Bank, ECB Banking Supervision Research Conference, FRBSF Climate Risks Workshop, GRASFI, NEOMA Sustainable Finance Conference, Norges Bank, SFI Research Days, SFS NA Cavalcade, SGF Conference, Western Finance Association Conference, Workshop on Environmental Finance for the Common Good at Birkbeck College, Audencia Business School, Bangor Business School, Bundesbank, ESSEC, Montpellier Business School, NTNU Business School, Reserve Bank of Australia, University of Edinburgh, University of Liverpool, University of Luxembourg, University of Manchester, University of Naples Federico II, University of New South Wales, Sydney Business School, University of Technology Sydney, University of Zurich
The Price of Leverage: Learning from the Effect of LTV Constraints on Job Search and Wages
with Kasper Roszbach
Does household leverage matter for workers' job search, matching in the labor market, and wages? We answer this question by exploiting the introduction of a macroprudential borrowing restriction that exogenously reduces household leverage in Norway. We study homeowners who lose their jobs and find that a reduction in leverage raises wages by 3.3 percentage points after unemployment. The restriction of leverage enables workers to search longer for jobs, and thereby find positions in firms that pay higher wage premia and switch to new occupations and industries. We observe no evidence that greater use of credit during unemployment drives the extended job search. The positive effect on wages is persistent and more pronounced for workers who are more likely to benefit from improved job search, such as young people. Our findings contribute to the debate on the costs and benefits of policies that constrain household leverage and show that such policies, while primarily aiming at enhancing financial stability, have other positive effects, such as improved labor market outcomes.
ABFER, Bayes Business School, BI Norwegian Business School, CBID Central Banker's Forum, CEBRA conference, CEPR European Workshop on Household Finance, Cleveland Fed, Danmarks Nationalbank, FIRS, European Finance Association conference, EFiC Conference in Banking and Corporate Finance, European Systemic Risk Board Working Group, European Winter Finance Summit, IBEFA Young Economist Seminar Series, IBEFA-ASSA Meetings, Ohio State PhD Conference On Real Estate and Housing, IBEFA summer conference, De Nederlandsche Bank, LUISS Guido Carli, Nova SBE, Norges Bank, Oslo Macro Group seminar, Philadelphia Fed Mortgage conference, Swiss Society for Financial Market Research Conference, Swiss Winter Conference on Financial Intermediation, Tilburg University, University of Groningen, University of Zurich, Young Swiss Economists Meeting
Publications
Unintended Consequences of Unemployment Insurance Benefits: The Role of Banks
with Yavuz Arslan and Ahmet Degerli, Management Science
We use disaggregated U.S. data and a border discontinuity design to show that more generous unemployment insurance (UI) policies lower bank deposits. We test several channels that could explain this decline and find evidence consistent with households lowering their precautionary savings. Since deposits are the largest and most stable source of funding for banks, the decrease in deposits affects bank lending. Banks that raise deposits in states with generous UI policies squeeze their small business lending. Furthermore, counties that are served by these banks experience a higher unemployment rate and lower wage growth.
BIS, European Finance Association, Federal Reserve Board Brownbag, Fuqua Finance Brownbag, MoFiR Workshop on Banking, SFI Research Days, SFS Cavalcade North America, Swiss Winter Conference on Financial Intermediation, Western Economic Association International Conference, Western Finance Association, University of Zurich
Population Aging and Bank Risk-Taking
with Sebastian Doerr and Steven Ongena, Journal of Financial and Quantitative Analysis
Does population aging affect bank lending? To answer this question we exploit geographic variation in population aging across U.S. counties to provide the first evidence on its impact on bank risk-taking. We find that banks more exposed to aging counties experience deposit inflows due to seniors' higher savings rate. They consequently extend more credit, but relax lending standards: Loan-to-income ratios increase and application rejection rates decline. Exposed banks also see a sharper rise in nonperforming loans during downturns, suggesting that population aging may lead to financial instability. These results are in line with an increase in savings and a decline in investment opportunities induced by population aging.
American Finance Association Annual Conference, Financial Intermediation Research Society Conference, Western Finance Association Meeting, FDIC 20th Annual Bank Research Conference, JFI-Nova SBE Conference on Financial Intermediation and Corporate Finance, Norges Bank-CEPR Workshop on Frontier Research in Banking, ZEW Conference on Ageing and Financial Markets, Annual Meeting of the Swiss Society for Financial Market Research
In Progress
Available upon request