This paper investigates the relationship between uncertainty and economic activity in a DSGE model with sticky prices and credit frictions. We analyse the effect of a mean preserving shock to the variance of aggregate total factor productivity (macro uncertainty) and we compare it to the effect...

The most recent recession has been associated with a financial crisis that led to a large widening of spreads and quantitative restrictions on lending. As well as affecting investment, such a credit contraction is likely to have had a large effect on the working capital positions of UK firms and...

The methodology used in papers by Darby and Ireland and Caporale and Williams is examined, to see whether it continues to explain UK consumption behaviour. First, Muellbauer and Murphy's proxy for financial liberalisation (FLIB) is updated. Then a forward-looking consumption model is...

This paper examines the sensitivity of the level of consumption to interest rates in a standard partial equilibrium theoretical framework with no uncertainty. Using a multi-period framework, the consumption function is derived and interest rate effects are decomposed into substitution, income...

The implications for consumption and saving behaviour are explored, when households are allowed to borrow, but face penalties which increase with the amount borrowed. It is shown that the introduction of this type of constraints (soft liquidity constraints) does not lead to consumers behaving...

It is widely perceived that credit supply conditions faced by UK consumers, particularly in the mortgage market, have been liberalised since the late 1970s, with implications for the housing market and consumer spending. This paper examines quarterly microdata from the Survey of Mortgage Lenders...

This paper introduces the Bank of England's new forecasting platform and provides examples of how it can be applied to practical forecasting problems. The platform consists of four components: COMPASS, a structural central organising model; a suite of models, used to fill in the gaps in the...

Simple intertemporal consumption theory implies that non-durable consumption is a random walk, but that consumption cointegrates with income and wealth. By the Granger representation theorem, there must be a (vector) error correction mechanism ((V)ECM) representation of the data; but from the...