A history of aggregate demand and supply shocks for the United Kingdom, 1900 to 2016

Abstract

This paper presents a history of aggregate demand and supply shocks spanning 1900 – 2016 for the United Kingdom. Sign restrictions derived from a workhorse Keynesian model are used to identify the signs of those shocks. We compare the 30 largest shocks implied by a vector autoregressive model in unemployment and inflation with the narrative historical record. Our approach provides a new perspective on well-known events in economic history. We highlight two episodes of particular interest: an aggregate supply shock in the late 1920s, which we attribute to changes in the bargaining power of labor, and positive aggregate demand shocks in the mid-1970s, which we attribute to fiscal policy.