We outline a number of ‘stylised’ facts on the UK business cycle obtained from analysis of the long-run UK annual dataset. The findings are to some extent standard. Consumption and investment are pro-cyclical, with productivity playing a dominant role in explaining business cycle fluctuations at all horizons. Money neutrality obtains over the long run but there is clear evidence of non-neutrality over the short run, particularly at the business cycle frequencies. Business cycle relationships with the external sector via the real exchange rate and current account are notable. Postwar, the price level is counter-cyclical and real wages are pro-cyclical, as are nominal interest rates. Modern general equilibrium macroeconomic models capture many of these patterns.
Get full access to this article
View all access options for this article.
References
1.
Altug, S., Chadha, J.S. and Nolan, C. (eds) (2003), Dynamic Macroeconomic Analysis: Theory and Policy in General Equilibrium, Cambridge, Cambridge University Press (forthcoming).
2.
Artis, M.J., Bladen-Hovell, R.C. and Zhang, W. (1995), ‘Turning points in the international business cycle: an analysis of the OECD leading indicators for the G-7 countries’, OECD Economic Studies, 24, pp.125-165.
3.
Backus, D.K. and Kehoe, P.J. (1992), ‘International evidence on the historical properties of business cycles’, American Economic Review, 82, pp. 864-888.
4.
Baxter, M. and King, R. (1999), ‘Measuring business cycles: approximate band pass filters for economic time series’, Review of Economics and Statistics, 81, pp. 575-593.
5.
Burns, A.F. and Mitchell, W.C. (1946), Measuring Business Cycles, New York, National Bureau of Economic Research.
6.
Capie, F. and Webber, A. (1985), A Monetary History of the United Kingdom, London, Allen and Unwin.
7.
Chadha, J.S., Janssen, N. and Nolan, C. (2000a, b), ‘An examination of UK business cycles fluctuations: 1871-1997’, DAE Working Paper 0024a, with Annex available as 0024b.
8.
Chadha, J.S., Janssen, N. and Nolan, C. (2001), ‘Productivity and preferences in a small open economy’, Manchester School, 69, pp. 57-80.
9.
Chadha, J.S. and Nolan, C. (2002a), ‘Supply shocks and the “natural rate of interest”; an exploration’, in Mahadeva, L. and Sinclair, P., Monetary Transmission in Diverse Economies, Cambridge, Cambridge University Press,
10.
Chadha, J.S. and Nolan, C. (2002b), ‘On the interaction of monetary and fiscal policy’, in Altug et al.
11.
Chadha, J.S. and Nolan, C. (2002c), ‘Optimal simple rules for the conduct of monetary and fiscal policy’, DAE Working Paper 0224.
12.
Christiano, L.J. and Fitzgerald, T. (1999), ‘The band pass filter’, NBER working paper no. 7257.
13.
Cooley, T. (ed.) (1995), Frontiers of Business Cycle Research, New Jersey, Princeton University Press.
14.
Cox, D.R. and Miller, H.D. (1965), The Theory of Stochastic Processes, London, Methuen and Company.
15.
Dow, J.C.R. (1998), Major Recessions, Oxford, Clarendon Press.
16.
Feinstein, C.H. (1972), National Income, Expenditure and Output of the United Kingdom, Cambridge, Cambridge University Press.
17.
Granger, C.W.J. (1969), ‘Investigating causal relations by econometric models and cross-spectral methods’, Econometrica, 50, pp. 424-438.
18.
Harvey, A.C. and Jaeger, A. (1993), ‘Detrending, stylised facts and the business cycle’, Journal of Applied Econometrics, 8, pp. 231-247.
19.
Hodrick, R.J. and Prescott, E.C. (1997), ‘Postwar US business cycles: an empirical investigation’, Journal of Money, Credit and Banking, 29, pp. 1-16.
20.
Homer, S. and Sylla, R. (1991), A History of Interest Rates, London, Rutgers University Press.
21.
King, R. and Watson, M. (1996), ‘Money, prices, interest rates and the business cycle’, Review of Economics and Statistics, pp. 35-53.
22.
Lucas, R.J. (1977), ‘Understanding business cycles’, Carnegie- Rochester Series on Public Policy, 5, pp. 7-29.
23.
Matthews, R.C.O., Feinstein, C.H. and Odling-Smee, J.C. (1982), British Economic Growth, 1856-1973, Oxford, Oxford University Press.
24.
Mitchell, B.R. (1988), British Historical Statistics, Cambridge, Cambridge University Press.
25.
Moore, G.H. and Zarnowitz, V. (1986), ‘The development and role of the National Bureau of Economic Research’s business cycle chronologies’, in Gordon, R.J. (ed.), The American Business Cycles, Chicago, University of Chicago Press.
26.
Neftci, S.N. (1986), ‘Is there a cyclical time unit?’Carnegie-Rochester Conference Series on Public Policy, 24, pp. 11-48.
27.
Prescott, E.C. (2002), ‘Prosperity and depression’, American Economic Review, 92, 2, pp. 1-15.
28.
Romer, C.D. (1989), ‘The prewar business cycle reconsidered: new estimates of gross natioanl product, 1869-1908’, Journal of Political Economy, 97, 1, February, pp. 1-37.
29.
Sargent, T. (1987), Macroeconomic Theory, Boston, Academic Press.
30.
Solon, G., Barsky, R. and Parker, J.A. (1994), ‘Measuring the cyclicality of real wages: how important is composition bias?’, Quarterly Journal of Economics, 109, pp. 1-25.
31.
Sheffrin, S.M. (1988), ‘Have economic fluctuations been dampened? A look at evidence outside the United States’, Journal of Monetary Economics, 21, pp. 73-83.
32.
Watson, M.W. and Stock, J. (1999), ‘Business cycle fluctuations in US macroeconomic time series’, in Taylor, J. and Woodford, M. (eds), Handbook of Macroeconomics, vol. 1a, North Holland, pp. 3-64.
