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Recession and Recovery in the United Kingdom in the 1990s: Identifying the Shocks

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  • Luis Catão
  • Ramana Ramaswamy

Abstract

This article uses a vector autoregression (VAR) approach to identify the causes of the 1990-92 recession in the UK. The VAR approach is shown to be particularly pertinent for quantifying the relative magnitude of the different demand shocks, and in decomposing them into monetary and expectational factors. The main finding is that the recent recession was precipitated primarily by shocks to consumption, and that the prior monetary tightening and the subsequent collapse in the housing market explain just part of this contraction. Non-monetary shocks also appear to have played an important role in bringing about the recession. The VAR model also offers interesting insights on the nature of the recovery that is currently under way.

Suggested Citation

  • Luis Catão & Ramana Ramaswamy, 1996. "Recession and Recovery in the United Kingdom in the 1990s: Identifying the Shocks," National Institute Economic Review, National Institute of Economic and Social Research, vol. 157(1), pages 97-106, July.
  • Handle: RePEc:sae:niesru:v:157:y:1996:i:1:p:97-106
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