Government spending, interest rates, prices, and budget deficits in the United Kingdom, 1701-1918
AbstractThe British data from the early 1700s through World War I provide an unmatched opportunity for studying the effects of temporary changes in government purchases. In this paper I examine the effects of these changes on interest rates, the quantity of money, the price level, and budget deficits. Temporary increases in government purchases--showing up in the sample as increases in military outlays during wartime--had positive effects on long-term interest rates. The effect on the growth rate of money (bank notes) was positive only during the two periods of suspension of the gold standard (1797-1821 and 1914-1918). As long as convertibility of bank notes into specie was maintained, there was no systematic relation of government spending to monetary growth. Similarly, the main interplay between temporary government spending and inflation occurred during the periods of suspension. Temporary changes in military spending accounted for the bulk of budget deficits from the early 1700s through 1918. This association explains the main increases in the ratio of the public debt to GNP, as well as the decreases that typically occurred during peacetime. Over the sample of more than two hundred years, I found only two examples of major budget deficits that were unrelated to wartime -- one associated with compensation payments to slaveowners in 1835-36 and the other with a political dispute over the income tax in 1909-10. Because of the "exogeneity" of these deficits, it is interesting that interest rates showed no special movements at these times.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Monetary Economics.
Volume (Year): 20 (1987)
Issue (Month): 2 (September)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505566
Other versions of this item:
- Robert J. Barro, 1986. "Government Spending, Interest Rates, Prices, and Budget Deficits in the United Kingdom, 1701-1918," NBER Working Papers 2005, National Bureau of Economic Research, Inc.
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.:
- Lucas, Robert Jr. & Stokey, Nancy L., 1983.
"Optimal fiscal and monetary policy in an economy without capital,"
Journal of Monetary Economics,
Elsevier, vol. 12(1), pages 55-93.
- Robert E. Lucas Jr. & Nancy L. Stokey, 1982. "Optimal Fiscal and Monetary Policy in an Economy Without Capital," Discussion Papers 532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Finn Kydland & Edward C. Prescott, 1980. "A Competitive Theory of Fluctuations and the Feasibility and Desirability of Stabilization Policy," NBER Chapters, in: Rational Expectations and Economic Policy, pages 169-198 National Bureau of Economic Research, Inc.
- Plosser, Charles I., 1982. "Government financing decisions and asset returns," Journal of Monetary Economics, Elsevier, vol. 9(3), pages 325-352.
- Kenneth L. Judd, 1983.
"Short-Run Analysis of Fiscal Policy in a Simple Perfect Foresight Model,"
559, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Judd, Kenneth L, 1985. "Short-run Analysis of Fiscal Policy in a Simple Perfect Foresight Model," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 298-319, April.
- Hall, Robert E., 1980.
"Labor supply and aggregate fluctuations,"
Carnegie-Rochester Conference Series on Public Policy,
Elsevier, vol. 12(1), pages 7-33, January.
- Lars Peter Hansen & Thomas J. Sargent, 1981.
"A note on Wiener-Kolmogorov prediction formulas for rational expectations models,"
69, Federal Reserve Bank of Minneapolis.
- Hansen, Lars Peter & Sargent, Thomas J., 1981. "A note on Wiener-Kolmogorov prediction formulas for rational expectations models," Economics Letters, Elsevier, vol. 8(3), pages 255-260.
- Barsky, Robert B & Summers, Lawrence H, 1988.
"Gibson's Paradox and the Gold Standard,"
Journal of Political Economy,
University of Chicago Press, vol. 96(3), pages 528-50, June.
- Barro, Robert J., 1979.
"On the Determination of the Public Debt,"
3451400, Harvard University Department of Economics.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.