An assessment of UK macroeconomic volatility: historical evidence using over seven centuries of data

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Authors

Plakandaras, Vasilios
Gupta, Rangan
Wohar, Mark E.

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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 the approach of 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 to the economy.

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Keywords

Time-varying parameter vector autoregressive (TVP-VAR), Macroeconomic shocks, Macroeconomic volatility, United Kingdom (UK)

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Citation

Plakandaras, Vasilios and Gupta, Rangan and Wohar, Mark E., An Assessment of UK Macroeconomic Volatility: Historical Evidence Using Over Seven Centuries of Data (April 20, 2018). Available at SSRN: https://ssrn.com/abstract=3275916 or http://dx.doi.org/10.2139/ssrn.3275916.