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A Long View of the UK Business Cycle

Published online by Cambridge University Press:  26 March 2020

Jagjit S. Chadha  and
Charles Nolan
Jagjit S. Chadha*
Affiliation:
Cambridge University
Charles Nolan*
Affiliation:
Durham University
*
e-mail: [email protected]
e-mail: [email protected]
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Abstract

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.

Type
Articles
Information
National Institute Economic Review , Volume 182 , October 2002 , pp. 72 - 89
Copyright
Copyright © 2002 National Institute of Economic and Social Research

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Footnotes

∗

This paper has been prepared for the National Institute Economic Review Special Issue on Business Cycles, October 2002. Norbert Janssen kindly allowed us to draw upon some of our joint work. We are grateful for comments on this work from Sumru Altug, Charles Feinstein, Sean Holly, Robin Matthews, Patrick Minford, Anton Muscatelli, Andrew Pagan, Peter Sinclair, Martin Weale and Michael Wickens. We are also grateful for research assistance from Wesley Fogel. Leverhulme Grant No. F/09567/A provided funding for part of this work.

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