COVID-19 Rental Eviction Moratoria and Household Well-Being with Stuart Gabriel and Xudong An

We investigate the impact of 2020 COVID-19 rental eviction moratoria on household well-being. Analysis of new panel data indicates that eviction moratoria reduced evictions and resulted in redirection of scarce household financial resources to immediate consumption needs, notably including food and grocery spending. We also find that eviction moratoria reduced household food insecurity and mental stress, with larger effects evidenced among African American households. Findings suggest broad salutary effects of eviction moratoria during a period of widespread virus and economic distress.

The Determinants of Fiscal and Monetary Policies During the Covid-19 Crisis with Effi Benmelech

As countries around the world grapple with Covid-19, their economies are grinding to a halt. For the first time since the Great Depression both advanced economies and developing economies are in recession. Governments and central banks have responded to the pandemic and the economic crisis using both fiscal and monetary tools on a scale that the world has not witnessed before. This paper analyzes the determinants of fiscal and monetary policies during the Covid-19 crisis. We find that high-income countries announced larger fiscal policies than lower-income countries and that the ability to deploy fiscal policies when short-term rates are ultra-low is limited by a country’s access to credit markets. These findings raise the concern that countries with poor credit histories – those with lower credit ratings and, in particular, lower-income countries – will not be able to deploy fiscal policy tools effectively during economic crises.

The Real Consequences of LTV Limits on Housing Choices Revise& Resubmit, Review of Financial Studies

This paper investigates the implications of credit constraints on housing decisions. I exploit the introduction of LTV limits in Israel in the years 2010 and 2012 and find that LTV limits increase interest rate and reduce loan amount. Although borrowers continue borrowing and purchase apartments, the LTV limits induced them to buy cheaper homes and to move farther from high demand areas to lower socio-economic neighborhoods. Buy-to-let investors were more affected by the LTV limit than first-time home buyers. My evidence suggests that LTV limits - a commonly used macro-prudential policy tool - affects not only financial stability but also affects borrowers’ decisions in the credit and housing markets.

The Effect of LTV-Based Risk Weights on House Prices: Evidence from an Israeli Macroprudential Policy With Steven Laufer, Journal of Urban Economics

This paper asks whether macroprudential policies that impose higher risk weights on high LTV mortgages can slow house price growth. By studying a 2010 Israeli macroprudential policy that only applies to mortgages above a certain value, we are able to compare prices in different segments of the market and credibly evaluate the effects of such policies on house prices. For housing units likely to be purchased using mortgages subject to the higher risk weights, we estimate that prices are lower by about 2 to 3 percent than they would have been without the policy. We find that the policy has larger effects in more expensive areas of the country and, in particular, in lower quality neighborhoods within these more expensive areas. Combining our results with previous estimates of the effect of this policy on mortgage interest rates, we derive an estimate for the semi-elasticity of house prices with respect to mortgage rates that is consistent with the upper range of estimates reported in the literature.

Macroprudential Policy: Implementation, Effects, and Lessons Israel Economic Review, Vol. 17, No. 1 (2019)

In this paper, I review the development of macroprudential policy (MPP) and, in particular, its regulatory structure, its influence on the financial system, and its costs and benefits. I find that the effectiveness of MPP depends on the institutional setup in which it is implemented: often, MPP is under the responsibility of the central bank, due to its independence, expertise and incentives to take action. However, this setup may generate conflicts between MPP and traditional monetary policy. I also discuss another issue undermining the effectiveness of MPP, namely, “leakages,” i.e., migrations of financial activity to institutions beyond the scope of application and enforcement of the MPP tool. Based on the Israeli experience of implementing MPP, I argue that coordination between the regulatory authorities supervising different sectors of the financial system is crucial for the successful implementation of MPP.

Assessing the impact of macroprudential tools: the case of Israel With Nadine Baudot-Trajtenberg and Roi Frayberg, BIS Papers chapters, "Macroprudential policy frameworks, implementation and relationships with other policies", volume 94, pages 107-218.

The Israeli financial system withstood the global financial crisis (GFC) of 2007–09 relatively well and came out unscathed. Notwithstanding this favorable outcome, Israel is a small open economy, which means that its domestic financial conditions cannot be disconnected from the consequences of low global interest rates. The upward trend in domestic asset prices, particularly home prices, has prompted policymakers to use macroprudential policy tools. This paper examines the effects that those measures have had on various risk indicators pertaining to credit providers and individual borrowers. We find that two typical risk indicators – the average loan-to-value (LTV)) and payment-to-income (PTI) ratios – have declined. Moreover, the banking system has increased its capital buffer for possible credit losses on its housing loan portfolio. Nevertheless, the authorities in charge of macroprudential policy must ascertain whether the measures implemented are not shifting risks to other, perhaps less visible, parts of the financial system. To complete a full assessment of the impact such policy on systemic risk, more granular and better data would be needed.

Does Location Matter? Evidence on Differential Mortgage Pricing in Israel With Natalya Presman, Bank of Israel Working Paper 2019.10

This paper explores the contribution of various factors to determining mortgage interest rates in Israel. We use a unique database combining loan-level data on mortgage loans originated by the Israeli banking system during 2010–13 with proprietary data on assets underlying mortgage origination as well as several additional variables designed to capture risk associated with regional real estate markets and the extent of competition prevailing in the banking system. We show that significant differences exist in real mortgage interest rates among different locations and neighborhood qualities. While homebuyers purchasing assets in the more prosperous central neighborhoods pay the lowest interest rates, those purchasing assets in the peripheral and economically weak neighborhoods pay the highest ones. Observable characteristics of the borrower, the mortgage and the underlying asset risk, and banking competition explain up to two thirds of the regional and socioeconomic differences in mortgage interest rates found in the raw data. Other factors that may explain remaining regional differences in the interest rates include unobservable borrower characteristics such as financial literacy and bargaining ability, unknown characteristics of borrower's employment and statistical discrimination of some groups of borrowers.