Research
Working Papers
Demand-Driven Stagnation: Customer Acquisition and Firm Growth (Job Market Paper)
Peter Sinclair Prize for Best Paper (13th MMF PhD Conference)
Abstract: What are the effects of a fiscal consolidation on firm growth, and do they depend on its distributional incidence? I study the UK’s 2010–2015 austerity programme, whose welfare cuts fell mostly on low-income households. Young firms in more exposed local authorities cut customer acquisition by up to 15% per standard deviation relative to less exposed peers, while their employment, capacity utilisation and markups were unaffected. Young firms’ value added fell and remained depressed through 2015, even after spending on customer acquisition recovered, suggesting a durable loss of customer base. Old firms showed no comparable adjustment. To explain why regressive shocks disproportionately scar young firms, I build a general equilibrium model in which firms accumulate customers from a heterogeneous-income population. Low-income customers churn faster, so young firms inherit a poor-biased customer base. This creates a “churn trap”: young firms depend most on the households a regressive consolidation hits hardest. The effects are especially strong for firms that operate in ‘luxury’ sectors, whose demand is the most income-elastic. In the calibrated model, the 2010 austerity programme destroys about half as much again of young firms’ customer capital as a progressive consolidation of the same size, and costs about nine pence more output per pound withdrawn than a progressive design, £11bn over the decade; the cohort entering during the shock remains persistently smaller than in the absence of the consolidation. A flat design would have avoided about a fifth of young firms’ loss of customer capital, and a progressive design about three tenths.
Monetary Transmission in a HANK Model with Housing and Rental Sectors, with Daniel Albuquerque and Jamie Lenney
CFM Discussion Paper 2025-29.
Previously circulated as “Monetary Transmission Through the Housing Sector”, Bank of England Staff Working Paper No. 1,115
Abstract: This paper develops a Heterogeneous Agent New Keynesian (HANK) model with housing and individual landlords to study how monetary policy transmits through and responds to housing and rental markets. Using new UK evidence we document that contractionary monetary policy generates a large, hump-shaped decline in house prices, while real rental prices increase mildly. We match the model to these facts and show how heterogeneity, real and behavioural frictions shape the response of rents and house prices to monetary policy. In turn rents and house prices become important for the transmission of monetary policy, and redistribute between renters, owners and landlords. Because a tightening modestly raises real rental prices, the model implies that policymakers should largely look through housing-driven inflation even under a headline inflation mandate.
Starting Over: Learning, Fresh Starts and the Reallocation of Serial Entrepreneurs
Abstract: Firms run by serial entrepreneurs are larger and more productive, yet little is known about how much aggregate output is lost because starting over is costly. I develop a firm-dynamics model in which entrepreneurs learn about their own ability and their business-specific match quality, and must liquidate and refinance to start over. I estimate the model on administrative data covering UK companies linked to their beneficial owners, which lets me follow entrepreneurs across the businesses they run. Two facts discipline the mechanism: within entrepreneurs, the serial productivity premium predates the switch to a new business, so it reflects selection on ability, not learning by doing; and exit rates fall with firm age, as entrepreneurs learn their ability in their first years. Because entrepreneurs learn slowly how good a match their business is, the most able wait years longer to start over than they would if they could see it. Removing the cost of starting over raises aggregate output by 2 percent and makes serial entrepreneurship the norm, with the gain coming from more firms, not better ones. For bankruptcy policy, recovering more of a failed firm’s capital does more for output than cutting the cost of a fresh start by a quarter.
Winners and Losers from Monetary Policy: Evidence from the UK Rental Market, with Morgane Richard
Abstract: This paper estimates the heterogeneous 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 heterogeneous 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 heterogeneous across housing tenure and implies a new distributional channel of monetary policy.
Policy Papers
Household Debt and Labour Supply, with Phil Bunn, Jagjit Chadha, Stephen Millard, and Emma Rockall
Bank of England Staff Working Paper No. 941
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.