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The Determinants of UK Business Cycles

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Author Info
Holland, Allison
Scott, Andrew

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Abstract

This paper considers the causes of postwar U.K. business cycles. Using an extended stochastic growth model the authors construct estimates of productivity and preference shocks both of which are highly persistent, volatile and potentially capable of explaining U.K. business cycles. They find the productivity term is the dominant explanation of U.K. output fluctuations but their estimated preference shift is crucial in understanding employment movements. A variety of Granger causality tests establish whether these productivity and preference terms are unpredictable and so can be potentially considered as the cause of U.K. business cycles or whether they are themselves Granger caused by other variables.

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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 108 (1998)
Issue (Month): 449 (July)
Pages: 1067-92
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Handle: RePEc:ecj:econjl:v:108:y:1998:i:449:p:1067-92

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  3. Alogoskoufis, George S, 1987. "Aggregate Employment and Intertemporal Substitution in the UK," Economic Journal, Royal Economic Society, vol. 97(386), pages 403-15, June. [Downloadable!] (restricted)
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  6. Kim, In-Moo & Loungani, Prakash, 1992. "The role of energy in real business cycle models," Journal of Monetary Economics, Elsevier, vol. 29(2), pages 173-189, April. [Downloadable!] (restricted)
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  7. Stock, James H., 1991. "Confidence intervals for the largest autoregressive root in U.S. macroeconomic time series," Journal of Monetary Economics, Elsevier, vol. 28(3), pages 435-459, December. [Downloadable!] (restricted)
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  8. Evans, Charles L., 1992. "Productivity shocks and real business cycles," Journal of Monetary Economics, Elsevier, vol. 29(2), pages 191-208, April. [Downloadable!] (restricted)
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  9. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-58, May. [Downloadable!] (restricted)
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  13. Barro, Robert J & King, Robert G, 1984. "Time-separable Preferences and Intertemporal-Substitution Models of Business Cycles," The Quarterly Journal of Economics, MIT Press, vol. 99(4), pages 817-39, November. [Downloadable!] (restricted)
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  14. Hansen, G D, 1993. "The Cyclical and Secular Behaviour of the Labour Input: Comparing Efficiency Units and Hours Worked," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(1), pages 71-80, Jan.-Marc. [Downloadable!] (restricted)
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  22. Timothy Cogley & James M. Nason, 1993. "Output dynamics in real business cycle models," Working Papers in Applied Economic Theory 93-10, Federal Reserve Bank of San Francisco.
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  24. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-47, October. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Erik Britton & Jens D J Larsen & Ian Small, . "Imperfect competition and the dynamics of mark-ups," Bank of England working papers 110, Bank of England. [Downloadable!]
  2. Jens D J Larsen & Jack McKeown, 2003. "The informational content of empirical measures of real interst rate and output gaps for the United Kingdom," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy in a changing environment, volume 19, pages 414-442 Bank for International Settlements. [Downloadable!]
  3. Mark S Astley & Anthony Garratt, . "Exchange rates and prices: sources of sterling real exchange rate fluctuations 1973-94," Bank of England working papers 85, Bank of England. [Downloadable!]
  4. Martin Ellison & Andrew Scott, . "Sticky prices and volatile output," Bank of England working papers 127, Bank of England. [Downloadable!]
    Other versions:
  5. Jack McKeown & Jens McKeown, 2004. "The informational content of empirical measures of real interest rate and output gaps for the United Kingdom," Money Macro and Finance (MMF) Research Group Conference 2003 62, Money Macro and Finance Research Group. [Downloadable!]
  6. Juan Paez-Farrell, 2003. "Monetary Policy and Business Cycle Analysis in an Optimising Model with Expectations Lags," Macroeconomics 0312002, EconWPA. [Downloadable!]
  7. Hasan Bakhshi & Ben Martin & Tony Yates, . "How uncertain are the welfare costs of inflation?," Bank of England working papers 152, Bank of England. [Downloadable!]
    Other versions:
  8. Bank for International Settlements, 2003. "Monetary policy in a changing environment," BIS Papers, Bank for International Settlements, number 19, 11. [Downloadable!]
  9. Arnab Bhattacharjee & Jagjit S. Chadha & Qi Sun, 2008. " Productivity, Preferences and UIP deviations in an Open Economy Business Cycle Model," CDMA Working Paper Series 0808, Centre for Dynamic Macroeconomic Analysis. [Downloadable!]
    Other versions:
  10. Galí, Jordi & Gertler, Mark & Lopez-Salido, Jose David, 2003. "Mark-ups, Gaps and the Welfare Costs of Business Fluctuations," CEPR Discussion Papers 4134, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  11. Peter Ireland & Scott Schuh, 2008. "Productivity and U.S. Macroeconomic Performance: Interpreting the Past and Predicting the Future with a Two-Sector Real Business Cycle Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 473-492, July. [Downloadable!] (restricted)
    Other versions:
  12. Jens D J Larsen & Jack McKeown, . "The informational content of empirical measures of real interest rate and output gaps for the United Kingdom," Bank of England working papers 224, Bank of England. [Downloadable!]
  13. Ravi Balakrishnan & J David L½pez-Salido, . "Understanding UK inflation: the role of openness," Bank of England working papers 164, Bank of England. [Downloadable!]
  14. Peter N. Ireland, 2007. "On the Welfare Cost of Inflation and the Recent Behavior of Money Demand," Boston College Working Papers in Economics 662, Boston College Department of Economics. [Downloadable!]
    Other versions:
  15. Alfred Maussner & Julius Spatz, 2006. "Determinants of business cycles in small scale macroeconomic models: the German case," Empirical Economics, Springer, vol. 31(4), pages 921-950, November. [Downloadable!] (restricted)
    Other versions:
  16. Mark S Astley & Tony Yates, . "Inflation and real disequilibria," Bank of England working papers 103, Bank of England. [Downloadable!]
  17. Stephen P Millard, . "The effects of increased labour market flexibility in the United Kingdom: theory and practice," Bank of England working papers 109, Bank of England. [Downloadable!]
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