Is British Output Growth Related to its Uncertainty? Evidence using Eight Centuries of Data

We examine the empirical relationship between output variability and output growth for Britain using data for eight centuries covering the 1270 to 2014 period. Drawing on the economic history literature, we split the full sample period in four subperiods and use GARCH models to measure output growth uncertainty and estimate its e ect on average growth. Within each sub-sample we allow output growth to depend on the state of the system, e.g. 2-regime switching model would switch between high-growth and low-growth regimes. We find that the e ect of uncertainty on growth di ers depending on the existing growth regime. Low-growth regimes are associated with a negative e ect of uncertainty on growth, and medium or high-growth regimes are associated with a positive e ect. These findings are consistent across the four states of economic development. Our results indicate why the empirical literature to date has found mixed results when examining the e ect of uncertainty on growth.