Daniel Nathan

Research Economist at the Bank of Israel

Jerusalem, Israel

· aafu by darshan

About Me

Welcome to my personal website. I am a Research Economist at the Monetary Department at the Bank of Israel. I am also a visiting scholar at Wharton for the 2022-2023 and 2023-2024 academic year. I recently graduated from Tel-Aviv University with a PhD in Finance (2022). I am interested in the overlap between finance and macroeconomics, and enjoy working in this area.

07/02/2023: My co-author Markus Hertrich will present our paper on the effects of Bank of Israel’s FX intervention in CEMLA.
04/11/2023: I will be presenting our paper on the effect of currency hedging of equity gains on the FX market in CICF 2023.


Visiting Scholar
2022 - Present · The Wharton School of the University of Pennsylvania
Research Economist
2008 - Present · Bank of Israel
Economist at the Monetary Division
2007 - 2008 · Bank of Israel


Ph.D. Candidate in Finance
2015 - 2022 · Tel-Aviv University


Working Papers

Recent research has documented and studied a persistent widening of cross-currency basis (i.e., deviation from covered interest rate parity) for a wide range of currencies with respect to the dollar since the global financial crisis. Theory of the foreign exchange (FX) swap market predicts that shortage of global arbitrage capital (GAC), by making the FX swap supply curve less elastic, would amplify the effect of increases in institutional investors’ (IIs’) demand for FX swaps on cross-currency basis. We use novel daily data on Israeli IIs’ and global banks’ FX swap flows to test this prediction within a suitable Bayesian local projection model, finding strong evidence supporting a meaningful and persistent such amplification mechanism.

Presented at: University of Pennsylvania. University of Cyprus. Geneva Graduate Institute.

Using confidential daily data, we analyse how the intervention episode of the Bank of Israel (BOI) from 2013 to 2019 has affected the foreign value of the Israeli new shekel (ILS) and the expectations about its future value. We find that interventions amounting to US dollar (USD) 1 billion are on average associated with a depreciation of the ILS by 0.82%-0.85%, which is at the upper bound of the estimated impact in other studies. The (indirect) effect on the forward rate is smaller - the BOI’s USD purchases have widened the negative deviation from covered interest parity. The higher moments of the risk-neutral probability distribution of future exchange rates proxied by the scaled price quotes of USD/ILS options, on the contrary, are unaffected. The USD purchases simply shift the whole distribution towards higher USD/ILS values. Crash risk, for instance, is unaffected. We also find that the USD/ILS options market anticipates intervention episodes and prices them in before they occur.

Presented at: Bank of Israel. Central Bank of Thailand. De Nederlandsche Bank. The IMF. 17th End-of-Year Conference of Swiss Economists Abroad.

Online appendix

We document a new channel of exchange rate determination by examining the impact of global equity market shocks on the collective hedging of foreign exchange (FX) risk by large institutional investors (IIs). Using novel daily data on FX forward flows of Israeli IIs, we investigate the causality between global equity shocks, hedging demands of IIs, and the exchange rate. We find that a one standard deviation innovation to the MSCI ACWI index leads to significant and persistent selling of dollar forwards by IIs, likely as a hedge against increased FX exposure. As a result, both the USD/NIS spot and forward rates experience a significant and persistent decline following the MSCI innovation.

Media Mentions:VoxEU

Presented at: Texas A&M. Bank of Israel. University of Pennsylvania.

Online appendix

Under review.

2021.Ari Kutai, Daniel Nathan, and Milena Wittwer.Central exchanges for government bonds? Evidence during COVID-19

In March 2020, government bond markets experienced severe illiquidity. Since then, regulators debate market reforms. One way to enhance liquidity could be to let government bonds, like stocks, be traded on central exchanges. We assess this reform with price data of the U.S, U.K., German, Japanese, and Israeli government bond and stock markets. We leverage a unique institutional feature of the Israeli government bond market—that it already operates on an exchange—to test whether and by how much having an exchange affected bid-ask spreads in March 2020 via difference-in-difference analyses. Our findings suggest that spreads in government bond markets without exchanges would have been 30%–60% lower if there had been an exchange. This implies higher liquidity and provides support in favor of the market reform.

Presented at: CEBRA 2021. 16th Central Bank Conference on the Microstructure of Financial Markets. Darrell Duffie PhD Mentorship and Student Celebration.

2021.Menachem (Meni) Abudy, Daniel Nathan, and Avi Wohl.Mutual Fund Flows and Government Bond Returns

We investigate daily flows to Israeli mutual funds, which are held primarily by retail investors. We find that daily net flows are contemporaneously correlated with price changes of all government bond categories (nominal/CPI-linked; short-term, intermediate-term, and long-term maturity). These price changes are subsequently reversed fully or partially within three months. The price reversals indicate that the initial price changes are due to “noise”. We find that these price distortions affect break-even inflation – a popular measure of inflation expectations. Our findings indicate that even securities that are held by institutions and professional investors are affected by retail sentiment.

*Presented at: Bank of Israel. Bar-Ilan university. Rotterdam university. FMCG 2022 conference. The 38th International Conference of the French Finance Association. The 38th Annual Conference of the Israel Economic Association. The 4th Israel Behavioral Finance conference.*

Revision requested by JBF [2023].

This paper uses Israeli data of inflation-indexed and nominal government bonds to estimate a discrete-time essentially affine term structure model. To estimate the model, I use a uniquely long-spanned sample of monthly real yields for the period of 01/1985-03/2018. The nominal yields data spans the period of 05/2001-03/2018. I document an unconditional upward sloping real term structure that the model ascribes to a rising real term premium while the average expected real short rates are relatively flat. A decomposition of the break-even inflation shows that the unconditional term structure of the inflation premium is increasing with maturity and most of the variance in the short end is due to expected inflation. However, in the long end, most of it is due to the inflation term premium.

Revision requested by IJCB [2021].

The Bank of Israel uses two models, one parametric and one non-parametric, to construct a distribution function for the future shekel/dollar exchange rate. The construction of the distribution is based on theoretical developments as described in the literature, adjusted to the market for forex options traded on the Israeli stock exchange. To calibrate the models, the Bank of Israel uses option prices sampled from the order book during the day. The purpose of this study is to propose a method for filtering out abnormal observations that arise due to the relatively low level of trade in a considerable share of options at the various strike prices using a filter based on the arbitrage rules found in the literature. The method improved the stability of both models in comparison to the filtering methods currently used at the Bank of Israel.


A short memo I wrote about the dash-for-cash in the Israeli government bond market in March of 2020 as a results of the spread of COVID-19.

Work in progress

Useful Matlab Programs

Newey-West Standard Errors
I wrote this program in 2013 while working as a research assistant to Prof. Jacob Boudoukh and it had served me well ever since. I basically use it in every time-series regression I use.


  • Reading
  • Travelling
  • Blitz Chess