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.

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.

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.

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

Productivity Slowdowns and Local Demand Shocks

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

Industrial Policy and Firm Entry