Changing volatility of long-term UK interest rates during Pax Britannica

Abstract

It is generally believed that the political and economic stability pertaining during the heyday of Britain's imperial power contributed to reduced uncertainty in the UK financial markets at that time. Employing quite a unique data set for the sample period spanning 1850–1914, we examine in this study the stability of four long-term UK interest rates, including the yield on Consols. Although we find some evidence for changing volatility in three interest rates, it appears that overall the interest rates did indeed exhibit remarkable stability over the long sample period.

Acknowledgement

This work was supported by Research Program 2013 of Kookmin University in Korea.

Notes

¹This is an active area of research, and many other inference procedures to find change-points in volatility are available in the literature. Some salient references are listed in Yoon (2008).

²Andreou and Ghysels (2002) employ instead the VARHAC estimator proposed by den Haan and Levin (1997).

³The Metropolitan Board of Works was responsible for running London's infrastructure such as its roads and bridges.

⁴For the full samples ending at 1914:07, very similar results are also shown and are available from the author upon request.