Research

Publications

Parental beliefs about returns to child health investments (with Pietro Biroli, Teodora Boneva and Christopher Rauh), Journal of Econometrics, 231(1): 33-57, 2022.

Childhood obesity has adverse health and productivity consequences and it poses negative externalities to health services. Its increase in recent decades can be traced back to unhealthy habits acquired during childhood. We investigate the role of parental beliefs by eliciting beliefs about the returns to a recommended-calorie diet and regular exercise using hypothetical investment scenarios. We show that perceived returns are predictive of health investments and outcomes, and that less educated parents perceive the returns to health investments to be lower. Our descriptive evidence suggests that beliefs contribute to the socioeconomic inequality in health outcomes and the intergenerational transmission of obesity.

Working papers

The Dynamics of Stock Market Participation (with Sigurd Mølster Galaasen) - job market paper (Latest, SSRN)

We document novel facts on the exit and reentry margins of stock market participation by retail investors using detailed administrative data on every Norwegian resident from 1993 to 2016. Contrary to the conventional view that individuals either never or always participate in the stock market, we find that many households leave the stock market within just 2 years of entry. Such behavior is more prominent for people of low income, wealth, and educational attainment, and those of younger age. Estimation of a hazard function shows that there is negative duration dependence in exit probabilities: the longer households participate for, the less likely they are to exit. With respect to the reentry margin, over 30% of exiters subsequently return to the stock market, often just a year later. A structurally-estimated life-cycle model with participation costs fails to generate sufficient exits. Extending the model to allow for experience-based learning, whereby agents form beliefs over the equity premium based on their personal realized returns, improves the model fit of participation rates, conditional risky shares, and financial wealth-to-income ratios by over half, whilst also generating quick exits and a downward-sloping hazard function for exit. However, the model still struggles to generate enough reentry. Using granular portfolio holdings data, we show that poor initial returns are associated with quick exits from the stock market, while positive returns increase the likelihood of reentry in line with an experience effects channel.

Policy Interaction and the Transition to Clean Technology (with Ghassane Benmir and Josselin Roman)

We study the implication of setting a market for carbon permits to meet the net-zero objective for the Euro Area. Using a dynamic stochastic general equilibrium model with financial frictions and an environmental externality embedded in a two-sector (green and brown) production economy, we identify two inefficiencies arising from the European Emissions Trading System: i) a welfare wedge and ii) a risk premium distortion. We find that macroprudential climate risk-weights on loans aimed at ensuring financial stability during the transition can also help to close the welfare wedge. Then, we show that quantitative easing rules would allow authorities to offset the effect of carbon price volatility on corporate risk premia. In addition, central banks have an incentive to tilt large-scale asset purchase programs toward green bonds when the macroprudential authority simultaneously implements climate risk-weights.

The impact of changes in bank capital requirements, Bank of England Staff Working Paper No 1004, 2022. 

This paper studies how banks respond to capital regulation using confidential data on bank‑specific requirements in the UK. Banks do adjust their capital ratios following changes in requirements, though the pass-through is incomplete. While they lower capital ratios following a loosening of requirements, they eat into their existing capital buffers when facing tighter regulatory minima. I find that the main adjustment channels have changed since the financial crisis. Prior to the crisis, banks responded to changes in their requirements through capital accumulation and loan quantities; however, they have since then primarily altered the risk composition of assets. 

Credit, capital and crises: a GDP-at-Risk approach  (with David Aikman, Jonathan Bridges, Cian O'Neill and Sinem Hacioğlu Hoke), CEPR Discussion Papers No. 15864, 2021.

Using quantile regressions applied to a panel dataset of 16 advanced economies, we examine how downside risk to growth over the medium term is affected by a set of macroprudential indicators. We find that credit and property price booms, and wide current account deficits increase downside risks 3 to 5 years ahead. However, such downside risks can be partially mitigated by increasing the capital ratio of the banking system. We show that GDP-at-Risk, defined as the 5th quantile of the projected GDP growth distribution three years ahead, deteriorated in the US in the run-up to the Global Financial Crisis, driven by rapid growth in credit and house prices alongside a widening current account deficit. Our results suggest such indicators could provide useful information for the stance of macroprudential policy.

Do bank capital requirements affect lending? Evidence from Basel I

How does financial regulation affect economic outcomes? By exploiting the implementation of Basel I - the first major macroprudential policy of its kind - in the US, this paper quantifies the impact of bank capital regulation on balance sheets and lending. Capital ratios do increase in response to tighter requirements. Banks achieve this by reducing the size of their balance sheet: a 1 percentage point increase in required ratios causes a 2.5% fall in total assets. This decline is concentrated in loans, particularly commercial & industrial and non-residential real estate loans, with residential mortgage lending remaining unaffected.