Impact case study database

An important social benefit and impact of this research is to reveal a major factor that determines the effectiveness of commonly used monetary and fiscal policy interventions: the role of household mortgage debt in the transmission mechanism. This is vital information for policy makers and others because it shows that fiscal measures that affect households with a mortgage could have a more powerful effect on consumer spending than expected. In contrast, conventional wisdom said the aggregate effects of macroeconomic policies were largely driven by households with lower income.

The results have had direct impact in three ways: on policy makers, on policy and on efforts to rebuild public trust in financial systems.

Policy makers:

Policy makers in governments and central banks around the world have used both the results and the analytical techniques developed in the research to make fiscal interventions more effective. For example, the Bank of England now includes Surico’s findings on transmission of monetary policy to households in its own analyses.

Andrew Haldane, chief economist at the Bank of England, says Surico’s work is “state-of-the-art and gradually being embedded into the day-to-day analysis that institutions like the Bank of England use.” [5.1]

The European Central Bank is also using Surico’s research. The ECB is now applying the mechanisms he developed to analyse data from the Euro area economy. The initial results appear to be “broadly similar’ says Oreste Tristani, a senior adviser with the ECB, which will allow the ECB to incorporate the mechanisms and results in its work. [5.2]

Policy:

Results from the research have helped to guide ECB policy on keeping interest rates at ultra-low levels. Surico’s research [3.1] shows how low interest rates lead to a significant increase in income across society. “These scientific findings have been influential not only in the public debate, but also in in-house policy deliberations on the costs and benefits of the low interest rates policy,” Tristani says. [5.2]

The research also helped to set a specific policy in Italy: the scrapping of a property tax in 2015. “The results in Paolo’s analysis could not have been more timely from our perspective, as the discussion among members of the government, parliament and their staff had been merely political until then,” says Tommaso Nannicini, a senator of the Italian Parliament and former Chief Economic Adviser and Undersecretary of State to the Italian Prime Minister Matteo Renzi. [5.3]

The research was studied by the Prime Minister’s economic advisers and discussed in parliamentary committees. It provided new impetus to the idea of abolishing the property tax on the main dwelling, and a precise quantification of the economic benefits of such a policy. When Renzi’s government abolished the tax, Surico’s research was quoted in parliamentary reports and official documents. “This represents a great example of evidence-based policymaking and productive interplay between academic research and political discussion,” Nannicini says. [5.3]

Rebuilding public trust:

In a different type of impact, the research also gives a solid evidence base to efforts by the Bank of England and other experts to rebuild public trust in financial institutions. One way they are doing this is to explain how different agents in the economy – by age, wealth, income, residence etc – are personally affected by decisions and policies, and therefore how macroeconomic policies affect inequality and how inequality shapes macroeconomic policies. Surico’s research “speaks directly to this,” Haldane says. “It provides an academic perspective for central banks to lean on when setting their strategy for engaging with citizens.” [5.1]

In 2015, The Economist magazine - in its popular section on explaining economic research by academics and economists to the general public - featured Surico’s work [3.2] to support the notion that tax relief for households with mortgage debt can be an effective policy tool to stimulate a depressed economy. [5.4]

In 2015, the daily Italian newspapers with large national circulation, Il sole 24 ore, Il Corriere and Il Giornale, presented the results of Surico’s research in [3.3] as part of the social and policy discussion on the desirability of a property tax on the main dwelling. [5.5] and [5.6, 5.7]

In 2016-2018, the Bank of England Monetary Policy Committee (MPC) has used extensive references to Surico’s work [3.1] and [3.2] to explain to the general public and members of Parliament the effectiveness of monetary policy and its transmission to consumption via income effects. This has been used in both formal communications by the Bank of England Deputy Governor to Parliament and in speeches of MPC members to the general public. [5.8, 5.9]