Charles Nolan

Bio

I am the Bonar-MacFie Chair of Political Economy at the University of Glasgow. I was educated at the University of Strathclyde and Birkbeck College, University of London. I worked for eight years at the Bank of England, first as a banking supervisor and then as an economist in the Monetary Assessment and Strategy Division.

I lectured at the University of Reading and was Reader in Economics at the University of Durham. Prior to joining the University of Glasgow in 2010, I was Professor of Economics at the University of St Andrews, where I co-founded the Centre for Dynamic Macroeconomic Analysis with Jagjit Chadha.

I was an Associate Editor of the European Economic Review (2014-2025) and I sit on the International Advisory Board of the Scottish Journal of Political Economy. I am a Fellow of the Royal Society of Edinburgh (elected 2015) and was President of the Scottish Economic Society between 2020 and 2023. I was a Commissioner of the Scottish Fiscal Commission (2016–2017).

Research

Papers

1. A Simple Prudential-Effort Foundation for the Financial Trilemma
   Charles Nolan.
   Key result: A simple ex ante prudential-effort model where financial integration amplifies cross-border crisis risk provides a useful formalization of the financial trilemma that does not depend on equilibrium selection.
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   Abstract

   The financial trilemma asserts that deep financial integration, purely national financial policies and financial stability cannot simultaneously be achieved. Existing formalizations employing ex post burden-sharing games imply the trilemma result hinges on equilibrium selection. We develop a minimal ex ante prudential-effort model where financial integration amplifies cross-border crisis risk and national regulators internalise only part of global losses. The unique symmetric Nash equilibrium underprovides prudential effort and cannot deliver first-best stability when both integration and national policy autonomy are high. That provides a unique-equilibrium foundation for the financial trilemma and clarifies when supranational prudential arrangements are needed.

2. Searching for Flexibility: The Joint Impact of Thatcher’s Reforms of UK Labour and Housing Markets
   Tatiana Kirsanova; Øyvind Masst; Charles Nolan.
   Key result: housing shocks explain roughly half of unemployment volatility; tenure shifts sharply towards ownership while average affordability changes modestly.
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   Abstract

   We quantify the macroeconomic effects of major housing- and labour-market reforms in the United Kingdom during the 1980s. We estimate a small New Keynesian DSGE model with search frictions in both labour and housing markets to evaluate the collapse in public construction, the Right to Buy programme, the decline in trade-union bargaining power, and the shift in monetary policy.

   We find strong cross-market spillovers: housing-market shocks account for roughly half of the volatility in unemployment and job search, and tight housing markets significantly dampen job creation. Counterfactual experiments imply that the observed fall in union bargaining power lowered the mid-1980s unemployment peak by about two percentage points relative to a no-reform path.

   The housing reforms tilt tenure sharply towards ownership and keep house-price-to-earnings ratios under sustained pressure, but taken together the reforms generate only modest changes in average affordability. In welfare terms, the negative effects of lower public construction are more than offset by the combination of lower unemployment and higher housing-service consumption, yielding a net welfare gain of around one percent in consumption-equivalent terms.

3. Monetary and Financial Policy with Privately Optimal Risk Taking
   Alfred Duncan; João Pedro De Camargo Mainente; Charles Nolan.
   Key result: macroprudential tools cannot fully internalise leverage externalities; monetary policy retains a financial-stability role but can risk unstable inflation.
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   Abstract

   We study how monetary and macroprudential policy should interact in a New Keynesian model with privately optimal, but socially risky, leverage. Entrepreneurs finance idiosyncratically risky projects under imperfect state verification, generating endogenous leverage, factor wedges, and an equity premium, even when aggregate risk is traded.

   Higher household risk aversion produces a “paradox of safety”: stronger demand for safe assets concentrates risk on entrepreneurial balance sheets, raising the welfare cost of cycles. Macroprudential tools act on leverage and balance-sheet exposures but cannot fully internalise associated externalities. A financial-stability role for monetary policy therefore remains—especially for temporary shocks—yet a regime that leans too hard on this role risks losing control of inflation.

4. Prudential Fiscal Stimulus
   Alfred Duncan; Charles Nolan.
   Key result: crisis-contingent wage subsidies can raise welfare even without standard demand or labour-market externalities, by improving ex ante incentives.
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   Abstract

   When government fiscal interventions are predictable, private incentives are distorted. If firms anticipate fiscal stimulus in a crisis, they may take on excessive risk today. How can fiscal interventions be designed to mitigate moral hazard, and can such interventions be time consistent?

   We show that stimulus programmes can be designed to induce precautionary behaviour ex ante, and we label these programmes prudential fiscal stimulus. We demonstrate the theory with a wage-subsidy stimulus policy. Countercyclical wage subsidies can be welfare-improving even in the absence of aggregate demand or labour-market externalities. Prudential fiscal stimulus is time inconsistent, but the presence of aggregate demand externalities can bring discretionary policies closer to the optimum.

5. Aggregate Investment and Consumption in a Continuous-Time Stochastic Blanchard-Yaari Model with CRRA Utility: A Martingale Approach
   Christian Oliver Ewald; Kevin Kamm; Charles Nolan; Aihua Zhang.
   Key result: martingale methods deliver closed-form aggregate consumption and portfolio allocations in a continuous-time stochastic OLG model with systematic risk.
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   Abstract

   We develop a continuous-time stochastic overlapping-generations model featuring agents who face constant mortality risk and have constant relative risk aversion (CRRA) preferences. The economy includes both a risk-free bond and a risky asset that captures systematic shocks. Unlike prior models that rely on discrete time or focus on idiosyncratic risk only, our approach captures aggregate stochastic dynamics under systematic risk.

   Using martingale methods, we derive closed-form expressions for individual and aggregate consumption, portfolio allocation, and human and financial wealth. A further contribution is a rigorous treatment of stochastic processes defined on the entire real line, which arise naturally in continuous-time stochastic overlapping-generations models.

   As an application, we analyse a small open economy subject to foreign exchange risk. Moderate exchange-rate volatility can raise aggregate consumption, while higher risk aversion can raise aggregate financial wealth. The model nests the classical Blanchard–Yaari framework as a deterministic special case and supports extensions involving stochastic income, incomplete markets, and the study of higher-order moments and distributions of aggregate variables.

6. Structure and Resolution in Banking: Are They Substitutes?
   Alfred Duncan; Charles Nolan.
   Key result: greater resolution credibility tends to strengthen (and not weaken) the case for structural separability, because separability and resolvability are complements.
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   Abstract

   Can bank resolution replace ring-fencing? We develop a simple framework of expected systemic loss in which structural separability and resolvability interact. When either of two common realities holds—structure makes resolution work better, or it reduces the support needed during failure—resolution and ring-fencing become complements, not substitutes. A dual welfare/target formulation gives the same policy choice. We obtain an “inverted” comparative static: as the credibility of using resolution rises, the optimal degree of separation often increases; easing is warranted only in knife-edge cases where structure brings no marginal benefit. A private–social comparison predicts under-investment in structure and preparedness. In general, better resolvability strengthens the case for ring-fencing.

Some work in progress

Past and recent publications

Recent

1. Nolan, Charles (2026). A Simple Prudential-Effort Foundation for the Financial Trilemma. Economics Letters, 262, 112879. doi
2. Ewald, Christian Oliver; Nolan, Charles (2024). On the adaptation of the Lagrange formalism to continuous time stochastic optimal control: a Lagrange-Chow redux. Journal of Economic Dynamics and Control, 162, 104855. doi
3. Duncan, Alfred; Nolan, Charles (2023). Adam Smith and the bankers: retrospect and prospect. National Institute Economic Review, 265(1), 70–104. doi
4. Damjanovic, Tatiana; Damjanovic, Vladislav; Nolan, Charles (2021). Unconditionally optimal Ramsey policy. Journal of Macroeconomics, 69, 103346. doi
5. Kirsanova, Tatiana; Nolan, Charles; Shafiei Deh Abad, Maryam (2021). Deep recessions. Economic Modelling, 96, 310–323. doi
6. Damjanovic, Tatiana; Damjanovic, Vladislav; Nolan, Charles (2020). Default, bailouts and the vertical structure of financial intermediaries. Review of Economic Dynamics, 38, 154–180. doi
7. Duncan, Alfred; Nolan, Charles (2019). Disputes, debt and equity. Theoretical Economics, 14(3), 887–925. doi

Contact

Email: charles.nolan@glasgow.ac.uk
Links: Google Scholar • SSRN