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A Note on the Determinants of UK Business Cycles


  • Day, A.
  • Leith, C.
  • Wren-Lewis, S.


In their empirical analysis of Real Business Cycle models for the UK, Holland and Scott (1998) find that they cannot reject the proposition that movements in output are largely determined by 'productivity shocks' which are independent of demand side variables, such as interest rates. In this note we extend their work to allow for the impact of financial liberalisation and credit availability. We find that credit availability has had a significant impact on movements in output, and that, when these effects are controlled for, monetary policy variables, including interest rates, also cause output. This is consistent with the conventional view that demand-expansion was the cause of the boom of the late 1980s and appears to reject a RBC interpretation of output movements.

Suggested Citation

  • Day, A. & Leith, C. & Wren-Lewis, S., 1998. "A Note on the Determinants of UK Business Cycles," Discussion Papers 9912, Exeter University, Department of Economics.
  • Handle: RePEc:exe:wpaper:9912

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General


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