Shocks and policy over time and space

Thesis

This thesis aims to advance our understanding of the spatial and temporal propagation of economic shocks across the UK economy.

The first chapter sets out the data I will use throughout this thesis. The second examines the role of cash-flow shocks on household and firm behaviour. I find that the reduction in monthly mortgage payments resulting from monetary policy stimulus in the autumn of 2008 significantly boosted employment in the depths of the Great Recession. The neighbourhood-level cash-flow effect varied with the proportion of fixed-rate mortgagors across the country, and its interaction with the structure of local employment markets led to regional heterogeneity in the potency of monetary policy. I find that the effect of monetary policy on overall annual employment growth varied by around 1.5 percentage points across local authorities.

The third chapter explores how local demand shocks associated with house price changes affect employment growth, and whether these shocks are transmitted across firm establishment networks. I find little evidence that credit or informational frictions have played much of a role since the Great Recession. But the employment effects of these local demand shocks do extend beyond administrative boundaries and ripple short distances across the country.

The fourth chapter revisits the Granular Hypothesis and its implications for the UK. I find that the UK firm-size distribution exhibits a quantitatively fat tail, but this is dominated by firms that generate revenues from customers living nearby. The size of such firms is naturally driven by the number of establishments in their network, which means they tend to have low geographical concentration. Since I find limited evidence for establishment-network transmission of local demand shocks, this suggests the propagation of idiosyncratic shocks to large firms is more likely to emanate from supply chain disruptions than from shocks to demand.

Authors: Cumming, F

• DOI: 10.5287/ora-qqmvkonbj
• Type of award: DPhil
• Level of award: Doctoral
• Awarding institution: University of Oxford
• Language: English
• Keywords: monetary policy; employment; size distributions; house prices
• Subjects: Economics