Abstract
AbstractWhat caused the recovery from the British Great Depression? A leading explanation – the ‘expectations channel’ – suggests that a shift in expected inflation lowered real interest rates and stimulated consumption and investment. However, few studies have measured, or tested the economic consequences of, inflation expectations. In this paper, we collect high‐frequency information from primary and secondary sources to measure expected inflation in the United Kingdom between the wars. A high‐frequency vector autoregression suggests that inflation expectations were an important source of the early stages of economic recovery in interwar Britain.
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