Employment and the Collateral Channel of Monetary Policy

123 Pages Posted: 25 Sep 2019

See all articles by Saleem Bahaj

Saleem Bahaj

Bank of England

Gabor Pinter

Bank of England

Angus Foulis

Bank of England

Paolo Surico

London Business School

Date Written: September 20, 2019

Abstract

This paper uses detailed firm-level data to show that monetary policy affects employment through housing collateral and corporate debt. Our research design exploits the fact that many small and medium-sized enterprises use their directors' homes as a key source of collateral for corporate loans, but directors typically live in a different region to their firm. This spatial separation of firms from their collateral allows us to distinguish the collateral channel from local demand effects. We find that younger and more levered firms with higher exposure to housing collateral fluctuations adjust employment the most following a change in monetary policy. The collateral channel explains a sizeable share of the aggregate employment response.

Keywords: firm heterogeneity, residential collateral, financial accelerator

JEL Classification: D22, E52, R30

Suggested Citation

Bahaj, Saleem and Pinter, Gabor and Foulis, Angus and Surico, Paolo, Employment and the Collateral Channel of Monetary Policy (September 20, 2019). Bank of England Working Paper No. 827, September 2019, Available at SSRN: https://ssrn.com/abstract=3459019 or http://dx.doi.org/10.2139/ssrn.3459019

Saleem Bahaj (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Gabor Pinter

Bank of England ( email )

Angus Foulis

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Paolo Surico

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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