From Bretton Woods to the Great Moderation: essays in British post-war macroeconomic history

This thesis contributes to our understanding of British macroeconomic history in the decades following World War II until the eve of the Global Financial Crisis. It visits pivotal historical episodes, analyses pre-eminent policy issues, and examines some of the most contentious academic debates of the day. Particular focus is given to macroeconomic fluctuations in the short and medium-run, in contrast to the extant economic history literature centred largely on economic growth and comparative performance at the long-run horizon. The first chapter investigates the impact of fiscal policy on the current account balance under the Bretton Woods system of fixed exchange rates. Contrary to established opinion, econometric modelling reveals that fiscal laxity was not responsible for driving the UK’s chronic imbalances and rather said imbalances must be understood with reference to a broader menu of economic shocks. The second chapter analyses the controversial issue of North Sea oil’s impact on the exchange rate, terms of trade, and performance of the traded manufactures sector. Results from vector autoregressive models indicate that oil did exert a considerable impact, although it was not uniquely responsible for the difficulties bedevilling the manufacturing sector. Furthermore, it is argued that government policy towards management of the windfall revenues missed key opportunities therein. Finally, the third chapter takes up the question of aggregate cyclical dynamics, with specific reference to a debate between leading Keynesian economists regarding the true autonomous source of demand in an open-economy. Evidence from frequency domain analysis suggests that both sides of the debate overstated their positions and that a synthesis view appears perfectly reasonable in light of evidence obtained across varying frequency scales. Taken as a whole, the thesis reveals substantive differences between how contemporaneous actors and policy makers understood open-economy macroeconomic policy, versus the insights revealed by more recent econometric techniques and theoretical developments. The potential policy failures resulting from this disparity are considerable