Research

Working Papers

Demand-Driven Stagnation: Customer Acquisition and Persistent Firm Growth Slowdowns

Peter Sinclair Prize for Best Paper (Joint 1st Place, 13th MMF PhD Conference)

Abstract: This paper shows that weak demand has played a critical and lasting role in the United Kingdom’s post-financial crisis slowdown. Exploiting local variation in the 2010 austerity program, I document that young firms, traditionally major contributors to job creation and productivity growth, saw their growth stall in regions hit harder by spending reductions. Young firms cut marketing expenditure by 15% and saw output growth slow, while employment and other production inputs were unaffected. To explain why demand shocks disproportionately scar young firms, I develop a dynamic general equilibrium model where firms accumulate customers with heterogeneous income. Two features are key. First, non-homothetic preferences generate higher income elasticities for low-income households. Second, low-income customers churn faster, making them over-represented in the acquisition pool. Together, these forces create a “churn trap”: young firms inherit low income-biased customer bases and face disproportionately volatile demand. When household income falls, the expected value of acquiring new customers drops sharply, causing young firms to cut marketing - their primary investment in customer acquisition. The calibrated model replicates key empirical patterns and attributes an upper-bound estimate of approximately one-quarter of the UK’s post-crisis productivity shortfall to these demand-side forces.

Monetary Transmission in a HANK Model with Housing and Rental Sectors, with Daniel Albuquerque and Jamie Lenney

Previously circulated as “Monetary Transmission Through The Housing Sector”

Abstract: This paper develops a Heterogeneous Agent New Keynesian (HANK) model with housing and individual landlords to examine how monetary policy affects housing and rental markets. Using new UK evidence we document that contractionary monetary policy generates a large, hump-shaped, decline in house prices, while rental prices remain flat. We match the model to micro and macro data, showing that behavioural frictions combined with departures from a RANK framework are key for generating these price dynamics. The results reveal that landlords largely fail to pass through higher interest rates to rents. However, this incomplete pass-through reduces the output-inflation trade-off facing inflation-targeting central banks.

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

Industrial Policy and Firm Entry