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The Speed of Firm Response to Inflation
Nicholas Bloom, Philip Bunn, Paul Mizen, Gregory Thwaites, Ivan Yotzov
Journal of the European Economic Association — October 2025
Firms' inflation perceptions respond within hours of data releases, driven by media coverage rather than surprises relative to professional forecasts.
This paper analyses the response of UK firms to monthly CPI inflation releases using high-frequency data from a large business survey. Firms' inflation perceptions and expectations respond within hours of new inflation data releases. Firm expectations are most responsive when inflation coverage in the media is elevated, suggesting a key role for the media in focusing attention on data releases. Furthermore, firms respond to changes in inflation data, but not to surprises relative to professional forecasts. This highlights a distinction between 'Wall Street', where financial markets respond to inflation surprises, and 'Main Street', where firms respond to media inflation headlines.
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Firm Inflation Uncertainty
Lena Anayi, Nick Bloom, Phil Bunn, Paul Mizen, Gregory Thwaites, Ozgen Ozturk, Ivan Yotzov
AEA Papers and Proceedings — 2023
Firm-level inflation uncertainty rose sharply from 2021, especially for smaller firms and those in the goods sector.
We introduce a new measure of own-price inflation uncertainty using firm-level data from a large and representative survey of UK businesses. Inflation uncertainty has increased significantly since the start of 2021, even as a similar measure of sales uncertainty has declined. We also find large cross-sectional differences in inflation uncertainty, with uncertainty particularly elevated for smaller firms and those in the goods sector. Finally, we show that firms that are more uncertain about their own price expectations experience higher forecast errors 12 months later. These findings suggest that inflation uncertainty may be important for understanding firm performance.
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The Impact of Covid-19 on Productivity
Nick Bloom, Philip Bunn, Paul Mizen, Pawel Smietanka, Gregory Thwaites
Review of Economics and Statistics — 2023
TFP fell by up to 6% during 2020–2021, combining large within-firm productivity losses with offsetting reallocation effects.
We analyze the impact of Covid-19 on productivity using data from an innovative monthly firm survey that asks for quantitative impacts of Covid-19 on inputs and outputs. We find that total factor productivity (TFP) fell by up to 6% during 2020-2021. The overall impact combined large reductions in 'within-firm' productivity, with offsetting positive 'between-firm' effects as less productive sectors, and less productive firms within them, contracted. Despite these large pandemic effects, firms' post-Covid forecasts imply surprisingly little lasting impact on aggregate TFP. We also see significant heterogeneity over firms and sectors, with the greatest impacts in those requiring extensive in-person activity.
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Population Aging and the Macroeconomy
Noëmie Lisack, Rana Sajedi, Gregory Thwaites
International Journal of Central Banking — 2021
Falling birth and death rates can explain much of the decline in real interest rates and the rise in house prices across advanced economies.
We quantify the impact of demographic change on real interest rates, house prices, and household debt in an overlapping-generations model. Falling birth and death rates across advanced economies can explain much of the observed fall in real interest rates and the rise in house prices and household debt. Since households maintain relatively high wealth levels throughout retirement, these trends will persist as population aging continues. Countries aging relatively slowly, such as the United States, will increasingly accumulate net foreign liabilities. The availability of housing as an alternative store of value attenuates these trends, while raising the retirement age has limited effects.
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Will Brexit Age Well? Cohorts, Seasoning and the Age-Leave Gradient
Barry Eichengreen, Rebecca Mari, Gregory Thwaites
Economica — August 2021
Recent cohorts are more pro-European, but voters also grow more Eurosceptic as they age; large nationwide swings dominate both effects.
In the UK's 2016 Brexit referendum, young voters were more likely than their elders to support remaining in the European Union. Using half a century of data and new techniques, we find that recent cohorts tend to be more pro-European than their predecessors, but that voters also become more sceptical towards Europe as they age. Much of the pro-Europeanism of recent cohorts is associated with greater years of education. We also document large nationwide swings in sentiment that have little to do with age or cohort effects. These time effects are plausibly associated with, inter alia, macroeconomic fluctuations, financial conditions and geopolitical circumstances, but they also could have other sources. They dominate the impact of the estimated age and cohort effects and will crucially determine future UK support for membership in the European Union.
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Economic Uncertainty Before and During the COVID-19 Pandemic
David Altig, Scott R. Baker, Jose Maria Barrero, Nicholas Bloom, Philip Bunn, Scarlet Chen, Steven J. Davis, Julia Leather, Brent H. Meyer, Emil Mihaylov, Paul Mizen, Nicholas B. Parker, Thomas Renault, Pawel Smietanka, Gregory Thwaites
Journal of Public Economics — August 2020
Multiple uncertainty indicators reached record highs during Covid, with amplitudes and time paths differing sharply across measures.
We consider several economic uncertainty indicators for the US and UK before and during the COVID-19 pandemic: implied stock market volatility, newspaper-based economic policy uncertainty, twitter chatter about economic uncertainty, subjective uncertainty about future business growth, and disagreement among professional forecasters about future GDP growth. Three results emerge. First, all indicators show huge uncertainty jumps in reaction to the pandemic and its economic fallout. Indeed, most indicators reach their highest values on record. Second, peak amplitudes differ greatly — from a rise of around 100% in two-year implied volatility on the S&P 500 and subjective uncertainty around year-ahead sales for UK firms to a 20-fold rise in forecaster disagreement about UK growth. Third, time paths also differ: implied volatility rose rapidly from late February, peaked in mid-March, and fell back by late March as stock prices began to recover. In contrast, broader measures of uncertainty peaked later and then plateaued, as job losses mounted, highlighting the difference in uncertainty measures between Wall Street and Main Street.
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Monetary Policy Transmission in an Open Economy: New Data and Evidence from the United Kingdom
Ambrogio Cesa-Bianchi, Gregory Thwaites, Alejandro Vicondoa
European Economic Review, Vol. 123 — April 2020
A new high-frequency identification of UK monetary policy shocks, showing effects on activity, prices, the exchange rate and credit spreads.
This paper investigates the impact of monetary policy shocks on macroeconomic and financial variables in the United Kingdom using a new series of high-frequency monetary policy surprises. Employing our surprises as an instrument in a monthly SVAR over the UK's inflation-targeting period, we show that a monetary policy tightening induces a decline in economic activity and in CPI, an appreciation of the Pound, a reduction in bank credit, and a significant increase in mortgage and corporate bond spreads. UK monetary policy also affects foreign credit spreads, consistent with the extensive presence of large international players in the UK financial intermediation sector.
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Foreign Booms, Domestic Busts: The Global Dimension of Banking Crises
Ambrogio Cesa-Bianchi, Fernando Eguren Martin, Gregory Thwaites
Journal of Financial Intermediation — 2019
Foreign credit growth is a powerful predictor of domestic banking crises, even controlling for domestic credit conditions.
This paper provides novel empirical evidence showing that foreign financial developments are a powerful predictor of domestic banking crises. Using a new data set for 38 advanced and emerging economies over 1970–2011, we show that credit growth in the rest of the world has a large positive effect on the probability of banking crises taking place at home, even when controlling for domestic credit growth. Our results suggest that this effect is larger for financially open economies, and is consistent with transmission via cross-border capital flows and market sentiment. Direct contagion from foreign crises plays an important role, but does not account for the whole effect.
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The Banks That Said No: Banking Relationships, Credit Supply and Productivity in the United Kingdom
Jeremy Franklin, May Rostom, Gregory Thwaites
Journal of Financial Services Research — 2019
Credit supply contractions after the financial crisis substantially reduced labour productivity, wages and capital per worker within firms.
This paper estimates the effects of changes in bank credit supply on the real economy. We use UK firm-level data around the global financial crisis and information on pre-existing bank lending relationships to isolate exogenous credit supply shocks. We find some evidence that contractions in credit supply substantially reduce labour productivity, wages, and capital per worker within firms, and increase the chance firms will fail. Our results have implications for the welfare costs of financial crises, and for the costs of policy measures affecting credit supply at other times.
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Step Away from the Zero Lower Bound: Small Open Economies in a World of Secular Stagnation
Giancarlo Corsetti, Eleonora Mavroeidi, Gregory Thwaites
Journal of International Economics — 2019
Small open economies can escape global stagnation via exchange rate depreciation, but adverse valuation effects may reduce welfare.
We study how small open economies can escape from deflation and unemployment in a situation where the world economy is permanently depressed. Building on the framework of Eggertsson et al. (2016), we show that the transition to full employment and at-target inflation requires real and nominal depreciation of the exchange rate. However, because of adverse income and valuation effects from real depreciation, the escape has a beggar-thy-self effect, that may end up lowering welfare while eliminating underemployment. We show that as long as the economy remains financially open, domestic asset supply policies or reducing the effective lower bound on policy rates may be ineffective or even counterproductive. However, closing domestic capital markets does not necessarily enhance the monetary authorities' ability to rescue the economy from stagnation.
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Pushing on a String: US Monetary Policy Is Less Powerful in Recessions
Silvana Tenreyro, Gregory Thwaites
American Economic Journal: Macroeconomics — 2016
The effects of US monetary policy on output and inflation are less powerful in recessions than expansions, related to growth rather than resource utilisation.
We investigate how the response of the US economy to monetary policy shocks depends on the state of the business cycle. The effects of monetary policy are less powerful in recessions, especially for durables expenditure and business investment. The asymmetry relates to how fast the economy is growing, rather than to the level of resource utilization. There is some evidence that fiscal policy has counteracted monetary policy in recessions but reinforced it in booms. We also find evidence that contractionary policy shocks are more powerful than expansionary shocks, but contractionary shocks have not been more common in booms. So this asymmetry cannot explain our main finding.
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Why Are Real Interest Rates So Low? The Role of the Relative Price of Investment Goods
Rana Sajedi, Gregory Thwaites
IMF Economic Review — 2016
The fall in the relative price of investment goods can account for a significant part of the decline in real interest rates and the nominal investment rate.
Across the industrialised world, real interest rates and nominal investment rates have fallen, while house prices and household debt ratios have risen. We present a calibrated OLG model which quantifies how much of these four trends can be explained with a fifth — the widespread fall in the relative price of investment goods. Relative to other explanations for low real interest rates, this trend is important because it can also account for the fall in nominal investment rates. The model can reproduce a small but economically significant part of the observed fall in interest rates and rises in house prices and household debt, and a larger part of the fall in the investment rate.