Measuring Inflation Expectations in Interwar Britain

February 18, 2021 | Blog
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This blog is based on research financed by a Francesca Carnevali award from the Economic History Society

by Jason Lennard (London School of Economics) and Solomos Solomou (University of Cambridge)


Unemployed man advertising for work.
Alleviating inter-war unemployment. Available at The National Archives <>

What triggered the economic recovery from the Great Depression in the 1930s? The international evidence is mixed. In Japan and the United States, the recession was ended by a regime change in economic policy that caused a shift in inflationary expectations (Temin and Wigmore, 1990; Eggertsson, 2008; Romer, 2014; Shibamoto and Shizume, 2014; Jalil and Rua, 2016), while in Germany there was no increase in expected inflation, implying that the causes of recovery must lie elsewhere (Daniel and ter Steege, 2020).

In Britain, inflationary expectations are the leading explanation for the escape from the ‘economic blizzard’ of the 1930s (Sayers, 1967). According to Crafts (2013, 2014), ending the gold standard, implementing the ‘cheap money’ policy, imposing the General Tariff and announcing a price level target, raised inflationary expectations, lowered real interest rates and stimulated consumption and investment. Chouliarakis and Gwiazdowski (2016) have built a New Keynesian model for interwar Britain that lays the theoretical foundations for an expectations channel in the recovery.

Despite the importance of expected inflation as an explanation for the recovery from the British Great Depression in the historiography, little work has been devoted to measurement. We will measure inflationary expectations in the United Kingdom between the wars.  To do so, we will construct a number of high-frequency estimates using primary sources. The first is a new approach based on forward and spot exchange rates and a dynamic factor model. The second is an established measure derived from future and spot commodity prices. The third is an index measuring inflationary and deflationary coverage in a sample of newspapers. The fourth approach is to consult a variety of archives for qualitative information.

An important contribution of this project will be to test a leading theory of the British recovery from the Great Depression by constructing the first estimates of inflationary expectations. Another contribution will be the collection of high-frequency data, which will allow us to understand the events that drove fluctuations in inflationary expectations.  A final contribution of the project will be the development of a new methodology for estimating expected inflation which can be applied in other historical contexts for which exchange rate data is rich but inflationary expectations data is scarce.


To contact the authors:

Jason Lennard,, @jason_lennard

Solomos Solomou,



Chouliarakis, G. and Gwiazdowski, T., ‘Regime Change and Recovery in 1930s Britain’, Mimeo, (2016).

Crafts, N., ‘Returning to Growth: Policy Lessons from History’, Fiscal Studies, 34 (2013), pp. 255–82.

Crafts, N., ‘What Does the 1930s’ Experience Tell Us About the Future of the Eurozone?’, Journal of Common Market Studies, 52 (2014), pp. 713–27.

Daniel, V. and ter Steege, L., ‘Inflation Expectations and the Recovery from the Great Depression in Germany’, Explorations in Economic History, 75 (2020).

Eggertsson, G. B., ‘Great Expectations and the End of the Depression’, American Economic Review, 98 (2008), pp. 1476–516.

Jalil, A. J. and Rua, G., ‘Inflation Expectations and Recovery in Spring 1933’, Explorations in Economic History, 62 (2016), pp. 25–50.

Romer, Christina D., ‘It Takes a Regime Shift: Recent Developments in Japanese Monetary Policy through the Lens of the Great Depression’, in J. A. Parker and M. Woodford, eds, NBER Macroeconomics Annual 2013 (Chicago, 2014), pp. 383–400.

Sayers, R. S., A History of Economic Change in England, 1880–1939 (Oxford, 1967).

Shibamoto, M. and Shizume, M., ‘Exchange Rate Adjustment, Monetary Policy and Fiscal Stimulus in Japan’s Escape from the Great Depression’, Explorations in Economic History, 53 (2014), pp. 1–18.

Temin, P. and Wigmore, B. A., ‘The End of One Big Deflation’, Explorations in Economic History, 27 (1990), pp. 483–502.