Jagdish Tripathy

Research Adviser, Bank of England

Publications

Refinancing Cross-Subsidies in the Mortgage Market

with Jack Fisher, Alessandro Gavazza, Lu Liu & Tarun Ramadorai

Journal of Financial Economics, 158:103876 (2024)

🏆 Jensen First Prize: Best Corporate Finance Paper, Journal of Financial Economics.

Abstract & links â–Ľ

In household finance markets, inactive households can implicitly cross-subsidize active households who promptly respond to financial incentives. We assess the magnitude and distribution of cross-subsidies in the mortgage market. To do so, we build a model of household mortgage refinancing and structurally estimate it on rich administrative data on the stock of outstanding mortgages in the UK. We estimate sizeable cross-subsidies from relatively poorer households and those located in less-wealthy areas towards richer households and those located in wealthier areas. Our work highlights how the design of household finance markets can contribute to wealth inequality.

Macroprudential Policy, Mortgage Cycles and Distributional Effects: Evidence from the UK

with José-Luis Peydró, Francesc Rodríguez-Tous & Arzu Uluc

Review of Financial Studies, 37(3), 727-760 (2024)

Abstract & links â–Ľ

We analyze the distributional effects of macroprudential policy on mortgage cycles by exploiting the U.K. mortgage register and a 2014 15% limit imposed on lenders’ high loan-to-income (LTI) mortgages. Constrained lenders issue fewer and more expensive high-LTI mortgages, with stronger effects on low-income borrowers. Unconstrained lenders strongly substitute high-LTI loans in local areas with higher constrained lender presence, but not high-LTI loans to low-income borrowers—consistent with adverse selection problems—implying lower overall credit to low-income borrowers. Consistently, policy-affected areas experience lower house price growth postregulation and, following the Brexit referendum (negative aggregate shock), better house price growth and lower mortgage defaults for low-income borrowers.

Previous version circulated as Macroprudential policy and the housing market: Evidence from the UK .

Cross-Border Effects of Regulatory Spillovers – Evidence from Mexico

Journal of International Economics, 126:103350 (2020)

Abstract & links â–Ľ

This paper studies the spillover of a macroprudential regulation in Spain to the Mexican financial system via Mexican subsidiaries of Spanish banks. The spillover caused a drop in the supply of household credit in Mexico. Municipalities with a higher exposure to Spanish subsidiaries experienced a larger contraction in household credit. These localized contractions caused a drop in macroeconomic activity in the local non-tradable sector. Estimates of the elasticity of loan demand by the non-tradable sector to changes in household credit supply range from 1.2–1.8. These results emphasize cross-border effects of regulations in the presence of global banks.

Working Papers

Behavioral Lock-In: Housing-Market Taxation with Reference-Dependent Agents

with Cristian Badarinza, Tarun Ramadorai & Juhana Siljander

Abstract â–Ľ We study the aggregate implications of reference dependent and loss averse preferences in the housing market. Motivated by micro evidence, we embed optimizing homeowners with these preferences into a dynamic search and matching equilibrium model with rich heterogeneity and realistic constraints. We assess the model using large and granular administrative data tracking buyers and sellers in the UK housing market; the predictions match regional and time variation in price growth and transaction volumes. The model shows that behavioral frictions in a decentralized market can link nominal quantities with real outcomes; and reveals that the distribution of potential nominal gains in the housing market is a key policy-relevant statistic.

Housing-Consumption Channel of Mortgage Demand

with Gabriel Ahlfeldt & Nikodem Szumilo

Abstract â–Ľ We quantify the *consumption channel in mortgage demand according to which households borrow more in response to house price increases since housing and non-housing consumption are imperfect substitutes. To identify the consumption channel, we take a structural approach to mortgage demand and supply, exploiting exogenous variation in house price growth and a unique matched house price-mortgage data set. We feed our estimate of the elasticity of mortgage borrowing with respect to house prices of 0.82 into a counterfactual analysis of the general equilibrium of housing and mortgage markets. We find that without the consumption channel, mortgage borrowing in the UK would have increased by over 50\% less since the 1990s and house price growth would have been lower by 31%.

Housing Booms and Credit Misallocation

Abstract â–Ľ This paper studies the effect of asset bubbles on economic growth in the presence of financial constraints and heterogeneous projects. I consider an economy with two sectors which differ in their productivity and level of financial constraints. In this framework, asset bubbles in credit markets raise interest rates and lower aggregate investment productivity by directing financial resources away from the sector with higher productivity. Further, they may lead to steady states with low investment productivity and welfare, creating bubbly growth-traps.

Selected Work in Progress

Star Charities, Director Networks and Firm Performance

with Saleem Bahaj, Andrew Blake, Angus Foulis, Andrew Haldane & Gábor Pintér — working paper available on request

Abstract ▼ We use a unique dataset on the population of UK company directors and their firms to study a novel, unexplored territory for social interactions among firm managers: charities. The most central charities comprise of highly skilled directors, and firms associated with these directors manage up to 60% of total assets in the UK economy. We show that a firm whose director joins one of these star charities subsequently experiences faster growth and increased employment. These effects are stronger for younger and smaller firms, and for firms with younger directors. The key mechanism points to skill diffusion: joining a star charity improves the quality of the director’s network of co-directors. Our results indicate a pecuniary benefit from associations with star charities via increased social capital.

Distributional Consequences of Borrower-Based Macroprudential Tools

with José-Luis Peydró, Francesc Rodríguez-Tous & Arzu Uluc — working paper available on request
Chapter in Research Handbook of Macroprudential Policy

Abstract â–Ľ This paper provides an overview of the cross-country evidence on the distributional consequences of macroprudential regulation of household leverage through borrower-based measures such as limits on loan-to-value and debt-service-to-income ratios. While these measures have been effective in breaking the self-enforcing loop between household leverage and house prices, they have a stronger impact on lending to borrowers requiring higher levels of leverage to get on the housing ladder (for instance younger or first-time buyers). Restricting household leverage has down-stream effects on job search, location choice, homeownership and susceptibility to income shocks. These measures have beneficial effects in terms of lower defaults and better house price dynamics during periods of economic distress. Looking ahead, further research is required on careful calibration of these measures, on adapting these measures to increased use of technology in financial intermediation and on the effects of these polices on the broader society via political outcomes and mental health.