Ahmet DEGERLI - Research

Publications and Policy Notes

Unintended Consequences of Unemployment Insurance Benefits: The Role of Banks (2025) with Yavuz Arslan and Gazi Kabas

Management Science

Abstract: We use disaggregated US 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 deposit holdings due to reduced precautionary savings. Because 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 reduce their loan supply to small businesses. Furthermore, counties that are served by these banks experience a higher unemployment rate and lower wage growth.

Private Credit Growth and Monetary Policy Transmission (2024) with Phillip Monin

FEDS Notes

Abstract: We examine the recent growth of private credit markets and its effects on monetary policy transmission. We find that private credit has grown by competing with or substituting other forms of credit and by lending to a set of borrowers that have difficulty obtaining credit otherwise. The growth of private credit was likely driven by regulatory and supervisory actions, an expansion of private equity in the economy, and attractiveness of private credit to borrowers and investors. We also find that monetary policy transmission through private credit markets appears muted relative to financing through public credit markets or bank C&I lending, as the supply of credit remains ample during policy tightening driven by attractive returns and a large stock of investment dry powder.

Reserve Option Mechanism as a Stabilizing Policy Tool: Evidence from Exchange Rate Expectations (2015) with Salih Fendoglu

International Review of Economics & Finance

Abstract: This paper focuses on a novel capital flow management tool, the reserve option mechanism (ROM) introduced by an emerging market central bank, that allows banks to hold a certain fraction of their domestic-currency required reserves in foreign currency. The results suggest that, after the introduction the ROM (i) market expectations leaned towards a significantly lower volatility and skewness in the exchange rate relative to other emerging market exchange rates; (ii) the exchange rate expectations have exhibited lower levels of volatility, skewness and kurtosis; (iii) the higher the intensity of ROM (the fraction of ROM-based reserves in total international reserves) the stronger the effect of ROM on exchange rate expectations. Last, we provide evidence that the mechanism acts as an automatic stabilizer of expectations about excessive movements in the exchange rate, decreasing expected likelihood of an abrupt reversal of capital flows.

Working Papers

Monetary Policy Exposure of Banks and Loan Covenant Strictness with Jing Wang

Abstract: We provide evidence that banks use loan covenants to prepare for future monetary policy tightening, thereby facilitating the bank lending channel of monetary policy transmission. Specifically, banks with greater monetary policy exposure—those whose lending capacity contracts more as the federal funds rate increases—include stricter financial covenants in loan contracts, granting them flexibility to reduce existing loan commitments during monetary policy tightening when firms breach covenants. Our findings highlight the role of covenants in monetary policy transmission and imply that even firms with long-term loans remain exposed to credit contractions resulting from monetary policy tightening.

The Rise of Nonbanks and the Quality of Post-Origination Mortgage Servicing with Jing Wang

Revise and Resubmit

Abstract: We find that as nonbanks' market share increases in a local residential mortgage market, the quality of their post-origination mortgage servicing improves. Two instrumental variable analyses exploiting (1) stress tests conducted by the Federal Reserve, and (2) mortgage industry surety bonds required by each state confirm this finding. Evidence suggests that the quality improvement is likely due to nonbanks' increased specialization in servicing lower-income borrowers and investment in technology. Furthermore, consistent with the lender specialization explanation, we find that as nonbanks' market share increases, traditional banks increasingly service higher-income borrowers and their servicing quality improves as well.

Unemployment Insurance and Macro-financial (In)Stability with Yavuz Arslan, Bulent Guler, Gazi Kabas, and Burhan Kuruscu

Abstract: 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