A Millennium of UK Business Cycles: Insights from Structural VAR Analysis

TL;DR

This study analyzes seven centuries of UK macroeconomic fluctuations using a time-varying VAR model, revealing shifts in business cycle drivers, volatility patterns, and the impact of monetisation over time.

Contribution

It introduces a novel long-term analysis of UK business cycles employing a structural VAR with stochastic volatility, capturing evolving dynamics over seven centuries.

Findings

Pre-1900 shocks are supply-driven, causing stagflation.

Post-1900 shocks are demand-driven, increasing output and inflation.

Output volatility has declined over centuries, peaking in the 17th century.

Abstract

We study macroeconomic fluctuations in the United Kingdom over seven centuries (1271--2022) using a time-varying VAR with stochastic volatility. We identify business cycle shocks as innovations explaining the largest share of future output variance. Before 1900, these shocks display a stagflationary, supply-driven pattern, while post-1900 shocks become demand-driven, raising both output and inflation. Output volatility declines over time, peaking in the seventeenth century. Monetisation had large real effects in the sixteenth and seventeenth centuries, shifting to more inflationary impacts thereafter. Our results highlight how business cycle dynamics evolve with institutional, monetary, and structural transformations.