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Exploring historical economic relationships: two and a half centuries of British interest rates and inflation

Author

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  • Terence C. Mills

    (Department of Economics, Loughborough University, Loughborough, UK)

Abstract

In this paper, we use new data and modern time series econometrics to reassess the relationship between interest rates, prices and inflation in Britain across the two and a half centuries from 1750 to 2006 for which reliable data are available. We pay particular attention to monetary regimes that may lead to breaks in the relationship and to associated shifts in the stochastic structure of interest rates and prices. The behaviour of real interest rates is examined in detail and estimates of the expected real rate are calculated using a variety of methods to check for robustness.

Suggested Citation

  • Terence C. Mills, 2008. "Exploring historical economic relationships: two and a half centuries of British interest rates and inflation," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 2(3), pages 213-228, October.
    • Handle: RePEc:afc:cliome:v:2:y:2008:i:3:p:213-228
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    Citations

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    Cited by:

    1. Michael, Hatcher, 2013. "Aggregate and welfare effects of long run inflation risk under inflation and price-level targeting," SIRE Discussion Papers 2013-19, Scottish Institute for Research in Economics (SIRE).
    2. David Greasley & Les Oxley, 2010. "Cliometrics And Time Series Econometrics: Some Theory And Applications," Journal of Economic Surveys, Wiley Blackwell, vol. 24(5), pages 970-1042, December.
    3. Cheng, Hao & Kesselring, Randall G. & Brown, Christopher R., 2013. "The Gibson paradox: Evidence from China," China Economic Review, Elsevier, vol. 27(C), pages 82-93.
    4. Hatcher, Michael, 2014. "Indexed versus nominal government debt under inflation and price-level targeting," Journal of Economic Dynamics and Control, Elsevier, vol. 45(C), pages 126-145.
    5. Taufiq Choudhry, 2024. "Interest rate, price level, and the inflation rate: Evidence from the UK during the gold standard regimes," Manchester School, University of Manchester, vol. 92(1), pages 20-39, January.
    6. Seçkin Kabak & Tuðçe Dallý, 2023. "Gibson Paradox: Panel Data Analysis on ASEAN-T Countries," International Econometric Review (IER), Econometric Research Association, vol. 15(1), pages 12-27, March.
    7. Veysel INAL & Serif CANBAY & Mustafa KIRCA, 2023. "Determinants of Food Prices in Türkiye: Fourier Engle-Granger Cointegration Test," Journal of Economic Policy Researches, Istanbul University, Faculty of Economics, vol. 10(1), pages 133-156, January.

    More about this item

    Keywords

    Gibson Paradox; Inflation; Interest rates; Prices; Real interest rates; Volatility;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913
    • N14 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: 1913-

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