Working Paper: NBER ID: w8583
Authors: Michael D. Bordo; Michael J. Dueker; David C. Wheelock
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.
Keywords: No keywords provided
JEL Codes: E31; E52; C25; N13; N4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Aggregate Price Shocks (E30) | Financial Instability (F65) |
| Price Level Shocks (E31) | Financial Instability (F65) |
| Inflation Rate Shocks (E31) | Financial Instability (F65) |
| Financial Instability (F65) | Higher Loan Defaults (G33) |
| Higher Loan Defaults (G33) | Bankruptcy (K35) |
| Regulatory Measures and Monetary Policy Responses (E52) | Financial Instability (F65) |