This means that, if we looked only at the boost to income and wealth from looser monetary policy, this would significantly understate the well-being benefits to households from the MPC’s monetary actions, by a factor of at least two. 34  For example, Jacoby (2002). Both are shown in Table 1. Log utility is the best fit for happiness across households, but it is also common to use this functional form at the individual level. We also experimented with a variety of other specifications, with higher order terms to capture greater curvature in the utility function, but these were generally not statistically significant. Note that our regressions are based on a pooled cross section of households and so are not pure estimates of the impact on happiness of changes in income and wealth over time. 36 For example, Winkelmann and Winkelmann (1998) and Di Tella et al (2003). 37 There are various ways to calculate the income-equivalence of the lower probability of unemployment, and these numbers would vary depending on the assumptions made. For simplicity, we exploit the results from our analysis, which show the effect on welfare from the lower probability of unemployment on the average household to be around six times larger than the welfare boost from higher labour income. 38 For example, Clark and Oswald (1994). 35  13  All speeches are available online at www.bankofengland.co.uk/speeches  13  Second, these gains from higher employment are felt particularly strongly by younger people who gain most from having a job.
A second thought is that the banks, when pricing loans, will look at the cash flow from the loan, which in this case can be equated with the company’s cash flow. In most cases, your companies have a large value in their properties as collateral and this will continue to be a positive thing for you, but as I said earlier, the banks today focus firstly on the customer’s ability to repay and then on the collateral offered. What is important to a company that has loans? •  Meticulous balance sheets and profit and loss accounts for the present time and going back a number of years. •  Low vacancy rates in the housing stock and rents that are paid on time. •  The banks will not merely evaluate the size of the cash flows, but also their stability. •  Orderly and well cared for property stock, i.e. property management is important. It is therefore important to have good knowledge of the bank’s actions and method of working. The difference in interest rate between borrowers of varying risk classes will be greater in future than it is today. It will therefore be important for companies applying for loans to present themselves as attractive borrowers to the bank or the capital market. If they want a low interest rate on their loans as a result of their negotiations with the bank, it is important to be able to demonstrate a company that has been stable and well managed for a number of years.