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A history of aggregate demand and supply shocks for the United Kingdom, 1900 to 2016

A history of aggregate demand and supply shocks for the United Kingdom, 1900 to 2016

Jump, Robert Calvert ORCID: 0000-0002-2967-512X and Kohler, Karsten (2020) A history of aggregate demand and supply shocks for the United Kingdom, 1900 to 2016. [Working Paper]

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Abstract

While economic theory has been applied to numerous topics in economic history, there are very few attempts to interpret major macroeconomic shocks from the perspective of standard Keynesian theory. This paper presents a history of aggregate demand and supply shocks spanning 1900 – 2016 for the United Kingdom, whose signs are identified using economic theory. We utilise sign restrictions derived from an AD-AS framework consistent with the workhorse New Keynesian model, and demonstrate how they can be used to identify the signs of structural shocks. The existence of 33 large shocks is inferred from estimated vector autoregressions, comprising 21 demand shocks and 12 supply shocks. We find that aggregate supply shocks were important in the late 1920s and early 1970s, which we attribute to changes in the bargaining power of labour. We also identify positive aggregate demand shocks in the mid-1970s, which we attribute to fiscal policy and suggest that these shocks will have exacerbated the inflationary effects of the 1973 oil price crisis, while mitigating its unemployment effects.

Item Type: Working Paper
Uncontrolled Keywords: aggregate demand shocks, aggregate supply shocks, sign restrictions, vector autoregressive model, New Keynesian model, economic history,
Subjects: H Social Sciences > HC Economic History and Conditions
Faculty / Department / Research Group: Faculty of Business
Faculty of Business > Department of International Business & Economics
Faculty of Business > Institute of Political Economy, Governance, Finance and Accountability (IPEGFA)
Faculty of Business > Institute of Political Economy, Governance, Finance and Accountability (IPEGFA) > Greenwich Political Economy Research Centre (GPERC)
Last Modified: 04 Aug 2021 16:33
Selected for GREAT 2016: None
Selected for GREAT 2017: None
Selected for GREAT 2018: None
Selected for GREAT 2019: None
Selected for REF2021: None
URI: http://gala.gre.ac.uk/id/eprint/30959

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