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Aggregate price shocks and financial stability: the United Kingdom 1796-1999

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Author Info
Michael D. Bordo
Michael J. Dueker
David C. Wheelock

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Abstract

This paper investigates the impact historically of aggregate price shocks on financial stability in the United Kingdom. We construct an annual index of U.K. financial conditions for 1790-1999 and use a dynamic probit model to estimate the effect of aggregate price shocks on the index. We find that price level shocks contributed significantly to financial instability during 1820-1931, and that inflation rate shocks contributed to instability during 1972-99. Both the nature of aggregate price shocks and their impact depend on the existing monetary and financial regime, but price shocks historically have been a source of financial instability.>

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2001-018.

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Date of creation: 2001
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Publication status: Published in Explorations in Economic History, April 2003, 40(2), pp. 143-69
Handle: RePEc:fip:fedlwp:2001-018

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Keywords: Economic policy Inflation (Finance) Prices

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  1. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  2. Michael Bordo & Barry Eichengreen & Daniela Klingebiel & Maria Soledad Martinez-Peria, 2001. "Is the crisis problem growing more severe?," Economic Policy, CEPR, CES, MSH, vol. 16(32), pages 51-82, 04. [Downloadable!] (restricted)
  3. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-34, June.
  4. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-76, June. [Downloadable!] (restricted)
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  5. Dueker, Michael, 1999. "Conditional Heteroscedasticity in Qualitative Response Models of Time Series: A Gibbs-Sampling Approach to the Bank Prime Rate," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(4), pages 466-72, October.
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  6. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March. [Downloadable!] (restricted)
  7. Sangmok Choi & Bruce D. Smith & John H. Boyd, 1996. "Inflation, financial markets and capital formation," Proceedings, Federal Reserve Bank of St. Louis, issue May, pages 9-35. [Downloadable!]
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  8. Larry Neal, 1998. "The financial crisis of 1825 and the restructuring of the British financial system," Review, Federal Reserve Bank of St. Louis, issue May, pages 53-76. [Downloadable!]
  9. Chib, Siddhartha, 1993. "Bayes regression with autoregressive errors : A Gibbs sampling approach," Journal of Econometrics, Elsevier, vol. 58(3), pages 275-294, August. [Downloadable!] (restricted)
  10. Huffman, Wallace E & Lothian, James R, 1980. "Money in the United Kingdom, 1833-80," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(2), pages 155-74, May. [Downloadable!] (restricted)
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