Research

Working Papers

Monetary Transmission Through The Housing Sector, with Daniel Albuquerque and Jamie Lenney

Abstract:The simultaneous rise in housing rents and interest rates over 2022–24 brought scrutiny to the interaction between monetary policy and the housing market. We start by providing evidence on this interaction using data from the United Kingdom and a high frequency identification. Our main empirical finding is that house prices and rents do not move together after an increase in interest rates. House prices fall strongly but gradually, reaching their trough after one year, while nominal rents are stable for one to two years, before eventually falling. Next, we develop a quantitative Heterogeneous Agent New Keynesian model that includes housing and rental sectors. In particular, we model individual landlords as the marginal providers of rental housing. We use the model to examine the housing channel of monetary policy where we find: (1) the housing channel is large and falls disproportionality on mortgagors; (2) deviations from rational expectations mean landlords largely fail to pass on mortgage costs and act more like wealthy hand to mouth; (3) these behavioural biases dampen the potential trade-off between prices and output induced by the rental market; and (4) that it may be optimal for monetary policy makers to look through and accommodate housing supply shocks.

Austerity and Business Dynamism

Abstract: This paper shows that weak aggregate demand has played a critical and lasting role in the United Kingdom’s post financial crisis slowdown. Using firm‐level data linked to local authority–level spending cuts, I document that young firms, traditionally major contributors to productivity growth, saw their growth stall in regions hit harder by reductions in Government spending. These young firms are reliant on acquiring new customers to grow, a margin that becomes more costly and less effective when demand falters. To explain why this slowdown persists, I develop a tractable model with two sided heterogeneity where firms invest in brand capital through customer acquisition, but where non‐homothetic preferences amplify the impact of demand shocks. Even a temporary drop in aggregate demand can lead to persistently weaker firm performance, as consumers cut back their spending, young firms who rely on the extensive margin of customer acquisition are hit particularly hard. The model replicates key empirical patterns and suggests that a substantial fraction of the UK’s slowdown can be attributed to these demand‐side forces. Overall, this paper highlights the importance of incorporating demand‐driven channels into analyses of long‐run stagnation. The findings underscore the potential value of targeted policies, such as marketing subsidies for high‐growth startups or more deliberate fiscal support to mitigate the scarring effects of weak aggregate demand.

Winners and Losers from Monetary Policy: Evidence from the UK Rental Market, with Morgane Richard

Abstract: This paper estimates the heterogenous effects of monetary policy across a novel dimension, housing tenure. Using microdata from one of the UK’s largest property rental and sales websites, we show that, as in the US, a contractionary shock to the policy rate leads to 1) an increase in rental prices and simultaneously 2) a fall in house prices. The granular microdata also allows us to demonstrate that a contractionary shock leads to a decrease in the listing rate of rental properties, suggesting that this heterogenous response across rents and house prices is not solely driven by household tenure decisions, but also by a rental supply channel. Finally, our identification approach does not lead to the typical ‘price puzzle’ found in many monetary VARs, suggesting that while contractionary policy lowers inflation, inflation incidence is heterogenous across housing tenure and implies a new distributional channel of monetary policy.

Serial Entrepreneurship and the Macroeconomy

Abstract: Serial entrepreneurship is a well known, but little understood feature of the macroeconomy. I develop a model featuring serial entrepreneurship and productivity uncertainty, and show that it can match a range of stylised facts about serial and non-serial entrepreneurs. I show that a government subsidy for potential entrepreneurs is welfare enhancing.

Household Debt and Labour Supply, Bank of England Staff Working Paper no.941, with Phil Bunn, Jagjit Chadha, Stephen Millard, and Emma Rockall

Abstract: In this paper, we first develop a theoretical framework with three types of household: outright homeowners, mortgagors and renters. We then examine empirically how household debt affects the response of labour supply to shocks to income, mortgage interest rates and house prices for each type of household. In line with our framework, we find that negative income shocks lead to lower participation among outright homeowners while increasing mortgagors’ desired hours; surprise rises in interest rates lead to increases in desired hours that are larger the higher is the household’s debt level; and falls in house prices increase mortgagors’ desired hours.

Work in Progress

Who Exits? Latent Heterogeneity in Firm Destruction over the Business Cycle, with Elena Casanovas

Industrial Policy and Firm Entry