Recent Research

New Papers and Notes

Unintended Consequences of Unemployment Insurance Benefits: The Role of Banks”, with Ahmet Degerli and Gazi Kabas
Credit Supply Driven Boom-Bust Cycles”, with Bulent Guler and Burhanettin Kuruscu
Price Search, Consumption Inequality and Expenditure Inequality over the Life Cycle”, with Bulent Guler and Temel Taskin (forthcoming at International Economic Review)
The fiscal response to the Covid-19 crisis in advanced and emerging market economies” with Enrique Alberola-Ila , Gong Cheng and Richhild Moessner BIS Bulletin  |  No 23 Jun 2020
Central bank bond purchases in emerging market economies” with Mathias Drehmann and Boris Hofmann BIS Bulletin  |  No 20 Jun 2020

Work in Progress

Do Automatic Stabilizers Really Stabilize? Evidence from Unemployment Insurance Policies and Housing Market” with Ahmet Degerli, Bulent Guler, and Gazi Kabas (preliminary draft available upon request)

Abstract We question the predominantly held view that unemployment insurance (UI) policies automatically stabilize economic fluctuations. We identify two mechanisms that can overturn the stabilizing effects. First, households in more generous UI economies, ex-ante, save less, hold less liquid assets, and borrow more. Specifically, in the mortgage market, down payment ratios decline and mortgage credit increases. As a result, both bank and household balance sheets weaken, which in turn increase the vulnerability to negative shocks. Second, more generous UI policies amplify the economy’s response to expansionary shocks as households with smaller income risk increase their debt, consumption and housing demand more. As a result, booms get amplified. Both a quantitative general equilibrium macro-economic model and empirical evidence from the U.S. mortgage and housing markets support our arguments.

“Monetary Policy Transmission with Adjustable and Fixed Rate Mortgages: The Role of Credit Supply” with Fatih Altunok and Steven Ongena

Abstract A decline in monetary policy rates reduces adjustable rate mortgage (ARM) payments. As a result, a looser monetary policy can induce a stronger increase in consumption and a faster revival of the economies with higher ARM shares. In this paper, however, we argue that this view is incomplete because it does not take into account banks: reduced mortgage payments from households reduces bank interest income, which in turn suppresses bank lending. The overall affect, therefore, will depend on the relative importance of these competing channels. We provide bank-, and country-level analysis to support our hypothesis. 

Quantitative Macroprudential Policy Analysis” with Bulent Guler and Burhanettin Kuruscu

Abstract Macroprudential policies have become popular, in particular after the 2008 crisis. However, policy makers and literature lack a rich and realistic quantitative framework that can be used for macroprudential policy analysis. This project offers one. In particular, we build on the framework developed in Arslan, Guler and Kuruscu (2020) and study the effects of the most commonly used policy tools including restrictions on loan-to-value ratio, debt-service-to-income ratio, and bank capital requirements.

Monetary Policy Analysis with Indebted HANK ” with Bulent Guler and Burhanettin Kuruscu

Abstract We extend the heterogeneous agent new Keynesian (HANK) framework by incorporating long-term mortgage and firm debt, and banks that issue and hold the debt on their balance sheets. We calibrate the model to the US data and quantify the relative importance of bank, firm, and household balance sheets in monetary policy transmission.

What’s wrong with “too-low for too-long”?with Fatih Altunok, Bulent Guler, and Burhanettin Kuruscu

Abstract We consider two mechanisms that mitigate monetary policy transmission when interest rates stay too-low for too-long. First, consumers who want to have enough income during retirement save even more. This is the case, for example, when there is a subsistence level of income/consumption during retirement. Second, firms that offer defined benefit pension schemes need to transfer more resources to pension fund and cut their investment and employment. These extra saving incentives create a feedback loop and lower the interest rates further.