NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Aggregate Price Shocks and Financial Stability: The United Kingdom 1796-1999

Michael D. Bordo, Michael J. Dueker, David C. Wheelock

NBER Working Paper No. 8583
Issued in November 2001
NBER Program(s):   DAE   ME

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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Document Object Identifier (DOI): 10.3386/w8583

Published:

  • Bordo, Michael D., Michael J. Dueker and David C. Wheelock. "Aggregate Price Shocks And Financial Instability: A Historical Analysis," Economic Inquiry, Oct. 2002, 40(4): 521-538 ,
  • Bordo, Michael D., Michael J. Dueker and David C. Wheelock. "Aggregate Price Shocks And Financial Stability: the United Kingdom 1796-1999." Explorations in Economic History, April 2003, 40(2): 143-169

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