Working Papers:

How do interest rates affect consumption?  Household debt and the role of asset prices with Jonathan Hazell, Atif Mian, and Belinda Tracey (February 2026)

This paper estimates how rate cuts increase consumption, via debt and asset prices. Using administrative UK data on mortgages and consumption, we exploit the expiry of fixed-rate mortgages to construct six million household-level natural experiments. A 1 percentage point reduction in mortgage rates raises consumption by 3% in the following six months. Using plausibly exogenous variation in how house prices respond to rate cuts, we show that consumption increases mostly because households borrow against higher house prices; lower debt service after rate cuts matters less. These results suggest that in large part, monetary policy affects consumption through asset prices and borrowing.

Publications:

Customer Data Access and Fintech Entry: Early Evidence from Open Banking with T. Babina, S. Bahaj, G. Buchak, F. De Marco, W. Gornall, F. Mazzola, and T. Yu 

Journal of Financial Economics,  Vol. 169, July 2025.

Open banking (OB) empowers bank customers to share their financial transaction data with fintechs and other banks. New cross-country data shows 49 countries adopted OB policies, privacy preferences predict policy adoption, and adoption spurs fintech entry. UK microdata shows that OB enables: (i) consumers to access both financial advice and credit; (ii) SMEs to establish new lending relationships. In a calibrated model, OB universally improves welfare through entry and product improvements when used for advice. When used for credit, OB promotes entry and competition by reducing adverse selection, but higher prices for costlier or privacy-conscious consumers partially offset these benefits.

Lending Relationships and the Collateral Channel with Gareth Anderson, Saleem Bahaj, Matthieu Chavaz, and Gabor Pinter

BoE Staff Working Paper version (October 2018)  

Review of Finance, Vol. 27, Issue 3, May 2023.  

This article shows that lending relationships insulate corporate investment from fluctuations in collateral values. The sensitivity of corporate investment to changes in real-estate collateral values is halved when the length of relationship between a bank and a firm, or its board of directors, doubles. Long relationships with board members dominate relationships with the firm in dampening the collateral channel. Moreover, lending relationships with directors in their personal capacity insulate corporate investment over and above corporate relationships. Our findings support theories where collateral and private information are substitutes in mitigating credit frictions over the cycle and show that lending relationships are more multi-faceted than previously thought. 

Employment and the Residential Collateral Channel of Monetary Policy with Saleem Bahaj, Gabor Pinter, and Paolo Surico 

CFM Version (December 2018);  Bank of England Working Paper (September 2019); Blog: Bank Underground (March 2020).  

Journal of Monetary Economics,  Vol. 131, October 2022.

Using micro-data covering private and public UK firms, we document heterogeneous responses to monetary policy; finding that employment at younger, more-levered firms is most sensitive. This heterogeneity is consistent with firm-level financial constraints.  To show this, we exploit the fact that the homes of company directors are a key source of corporate collateral, but many directors live in a different region to their firm, allowing specifications controlling for demand. Younger, more-levered firms exposed to collateral fluctuations drive the employment response, showing a residential collateral channel in the transmission of monetary policy to firms.

Home Values and Firm Behaviour with Saleem Bahaj and Gabor Pinter 

BoE Staff Working Paper Version (October 2017) 

American Economic Review, Vol. 110, No. 7, July 2020.    

Companion paper with a structural model: "The Residential Collateral Channel: A General Equilibrium Analysis" 

Early version titled "The Residential Collateral Channel"; Link to Bank Underground post; AEA Chart of the Week.

The homes of firm owners are an important source of finance for ongoing businesses. We use UK micro-data to show that a £1 increase in the value of the homes of a firm’s directors increases the firm’s investment by £0.03. This effect is concentrated among firms whose directors’ homes are valuable relative to the firm’s assets, that are financially constrained, and that have directors who are personally highly levered. An aggregation exercise shows that directors’ homes are as important as corporate property for collateral driven fluctuations in aggregate investment demand.

Credit Traps and Macroprudential Leverage with Ben Nelson and Misa Tanaka

Journal of Money, Credit and Banking, Vol. 51, No. 7, October 2019.

Bank of England Working Paper (July 2017)

We construct a macroeconomic model with overlapping generations to study credit traps — prolonged periods of stagnant real activity accompanied by low productivity, financial sector undercapitalisation, and credit misallocation. Shocks to bank capital tighten banks’ borrowing constraints causing them to allocate credit to easily collateralisable but low productivity projects. Low productivity weakens bank capital generation, reinforcing tight borrowing constraints, sustaining the credit trap steady state. Macroprudential policy to limit bank leverage can be welfare enhancing. In the presence of a credit trap, optimal leverage policy is countercyclical.

Macroprudential Policy Under Uncertainty with Saleem Bahaj

The International Journal of Central Banking, Vol. 13, No. 3, September 2017.

Bank of England Working Paper (January 2016); Link to Bank Underground post

We argue that uncertainty over the impact of macroprudential policy need not make a policymaker more cautious. Our starting point is the classic finding of Brainard that uncertainty over the impact of a policy instrument will make a policymaker less active. This result is challenged in a series of richer models designed to take into account the more complex reality faced by a macroprudential policymaker. We find that asymmetries in policy objectives, the presence of unquantifiable sources of risk, the ability to learn from policy, and private-sector uncertainty over policy objectives can all lead to more active policy.