UK Business and Financial Cycles Since 1660 : Volume I: A Narrative Overview

This book is the first of two volumes that aim to provide an up-to-date overview of the key data and techniques necessary for analysing the historical behaviour of business and financial cycles in the United Kingdom. Drawing on an extensive secondary literature and the considerable body of historical macroeconomic and financial time series data that exist for the United Kingdom, the two volumes will review the key features of historical recessions and recoveries over the course of three and a half centuries. Volume 1 provides an overview of UK business cycles since 1660. The first part of the book considers old and new theories of the business cycle, looking at the impulses that generate business cycles and the propagation mechanisms that determine their duration and amplitude. The second part of the book uses the latest historical estimates of GDP to look at different ways of measuring and estimating business cycle fluctuations within a simple univariate framework. Finally, the book provides a narrative of UK economic fluctuations since 1660 using a whole range of economic data to shed light on the main drivers of cyclical behaviour. It concludes by highlighting areas for future research especially with regard to the link between business and financial cycles, some of which will be explored in Volume 2. Acknowledgements 6 Contents 7 List of Figures 8 List of Tables 15 1 Introduction 16 References 20 2 Business, Monetary and Credit Cycles in Theory 21 2.1 Business Cycle Definition 22 2.2 Impulse and Propagation of Business Cycles 23 2.3 Classical Theories of the Business Cycle 26 2.4 Classical Monetary and Credit Cycles 29 2.5 Modern Theories of the Business Cycle 32 2.5.1 The Post-WW2 Keynesian Multiplier-Accelerator View of the Cycle 32 2.5.2 Monetarist and New Classical Monetary Cycles 34 2.5.3 New Keynesian Business Cycles 37 2.5.4 Real Business Cycles 38 2.5.5 Financial and Credit Cycles 39 2.6 Summary—Impulse, Propagation and Policy Response 42 References 46 3 Statistical and Econometric Analysis of the Cycle 49 3.1 Aggregated or Disaggregated Data 49 3.2 Classical Versus Growth Cycles—To De-trend or Not to De-trend? 52 3.3 Methods of Determining Turning Points in Classic Cycles 54 3.3.1 The Graphic or Algorithmic Approach 55 3.3.2 The Statistical Approach—Markov-Switching Methods 57 3.4 Methods of De-trending—Growth Cycles 58 3.4.1 The Unobserved Components Model 59 3.4.2 The Beveridge-Nelson Decomposition 62 3.4.3 HP and Band-Pass Filters—Non-parametric Methods 63 References 65 4 GDP Data for Analysing Business Cycles 68 4.1 Background and Method 68 4.2 Sources and Construction—Annual Data 1660–2018 70 4.2.1 1948 Onwards 70 4.2.2 1920–1948 72 4.2.3 1870–1920 74 4.2.4 1660–1870 76 4.3 Quarterly and Monthly GDP Estimates 77 4.4 Summary of GDP Data 78 References 81 5 Metrics and Turning Points of Cycles 1660–2018 83 5.1 Classical Cycle Metrics 83 5.2 Growth Cycle Metrics 94 References 105 6 A Narrative History of UK Business Cycles 106 6.1 Prologue—The Emerging Market Economy 1660–1720 107 6.1.1 Overview—Institutional Factors and Key Drivers 107 6.1.2 The Birth of Modern Business Cycles 1660–1720 113 6.2 The Long C18th 1720–1830 115 6.2.1 Overview—Institutional Factors and Key Drivers 115 6.2.2 The Expansion of Empire 1720–1780 121 6.2.3 The French Wars and the Restriction Period 1780–1830 126 6.3 The Victorian and Edwardian Economy 1830–1913 138 6.3.1 Overview—Institutional Factors and Key Drivers 138 6.3.2 From Crisis to Crisis 1832–1867 147 6.3.3 Industrial Apotheosis, Boom and Slump 1867–1879 153 6.3.4 The Mature Industrial Economy 1880–1913 156 6.4 The Interwar Economy 1919–1939 160 6.4.1 Overview—Institutional Factors and Key Drivers 160 6.4.2 WW1 and the 1921 Trough 165 6.4.3 The Return to Gold and the Great Depression 1921–1932 168 6.4.4 The Recovery of the 1930s 173 6.5 The Managed Economy 1945–1973 178 6.5.1 Overview—Institutional Factors and Key Drivers 178 6.5.2 The After-Effects of WW2 and the “Go-Stop” Cycles in the 1950s and 1960s 186 6.5.3 Devaluation and Deflation in the Late 1960s 190 6.6 The Liberalised Economy 1971–2018 192 6.6.1 Overview—Institutional Factors and Key Drivers 192 6.6.2 The Great Inflation and a Search for a Nominal Anchor 1971–1992 201 6.6.3 The Great Stability 1992–2007 211 6.6.4 Epilogue—The Great Financial Crisis and Recession of 2008 and the Productivity Puzzle 215 References 219 7 Conclusions 229 References 231 References 232 Index 248 Front Matter ....Pages i-xix Introduction (Nicholas Dimsdale, Ryland Thomas)....Pages 1-5 Business, Monetary and Credit Cycles in Theory (Nicholas Dimsdale, Ryland Thomas)....Pages 7-34 Statistical and Econometric Analysis of the Cycle (Nicholas Dimsdale, Ryland Thomas)....Pages 35-53 GDP Data for Analysing Business Cycles (Nicholas Dimsdale, Ryland Thomas)....Pages 55-69 Metrics and Turning Points of Cycles 1660–2018 (Nicholas Dimsdale, Ryland Thomas)....Pages 71-93 A Narrative History of UK Business Cycles (Nicholas Dimsdale, Ryland Thomas)....Pages 95-217 Conclusions (Nicholas Dimsdale, Ryland Thomas)....Pages 219-221 Back Matter ....Pages 223-242