UK macroeconomic volatility : historical evidence over seven centuries
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Date
Authors
Plakandaras, Vasilios
Gupta, Rangan
Wohar, Mark E.
Journal Title
Journal ISSN
Volume Title
Publisher
Elsevier
Abstract
Breaking ground from all previous studies, we estimate a time-varying Vector Autoregression model that examines the time-period 1270–2016 — the entire economic history of the U.K. Focusing on permanent and transitory shocks in the economy, we study the fluctuation in conditional volatilities and time-varying long-run responses of output growth and inflation. Unlike all previous studies that use time invariant linear models, our approach reveals that the pre 1600 period is a turbulent economic period of high volatility that is only repeated in the 20th century. The repeating patterns in the conditional volatilities follow from aggregate supply shocks, while most of the inflation responses follow from aggregate demand shocks. Thus, we uncover that despite the technological growth and the various changes in the structure of the U.K. economy in the last century, the recurring patterns call for an examination of the true impact of the various policies on the economy.
Description
Keywords
Time-varying parameter vector autoregressive (TVP-VAR), Macroeconomic shocks, Vector autoregression (VAR)
Sustainable Development Goals
Citation
Plakandaras, V., Gupta, R. & Wohar, M.E. 2018, 'UK macroeconomic volatility : historical evidence over seven centuries', Journal of Policy Modeling, vol. 40, no. 4, pp. 767-789.