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

48 Pages Posted: 10 Nov 2001 Last revised: 16 Jun 2021

See all articles by Michael D. Bordo

Michael D. Bordo

Rutgers University, New Brunswick - Department of Economics; National Bureau of Economic Research (NBER)

Michael Dueker

Federal Reserve Banks - Federal Reserve Bank of St. Louis

David C. Wheelock

Federal Reserve Bank of St. Louis - Research Division

Date Written: November 2001

Abstract

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.

Suggested Citation

Bordo, Michael D. and Dueker, Michael and Wheelock, David C., Aggregate Price Shocks and Financial Stability: The United Kingdom 1796-1999 (November 2001). NBER Working Paper No. w8583, Available at SSRN: https://ssrn.com/abstract=290384

Michael D. Bordo (Contact Author)

Rutgers University, New Brunswick - Department of Economics ( email )

New Brunswick, NJ
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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Michael Dueker

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

David C. Wheelock

Federal Reserve Bank of St. Louis - Research Division ( email )

P.O. Box 442
St. Louis, MO 63166-0442
United States

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