Turning in the widening gyre: monetary and fiscal policy in interwar Britain

Staff working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 25 March 2022

Staff Working Paper No. 968

By David Ronicle

This paper brings together modern empirical techniques, a sign-restricted structural vector autoregression, with contemporary high frequency data to answer an old question – what role did macroeconomic policy play in Britain’s high unemployment and deflation in the years 1919 to 1938. Its specific innovation is to draw on a previously little-used weekly publication of public finance statistics, allowing the roles of taxation, public spending and monetary policy to be assessed side-by-side in a coherent framework. In a period of particularly unsettled policy the paper finds that policy shocks, both monetary and fiscal, made a material contribution to variation in prices and unemployment – and these played a central role in the two great recessions of the period, modern Britain’s most severe. Other policy choices could have delivered better outcomes for prices and unemployment – but these would have required making different choices in the face of conflicting objectives and some sharp trade-offs.

Turning in the widening gyre: monetary and fiscal policy in interwar Britain

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